ACIT, Ajmer V. M/S SHREE CEMENT LTD., BEAWAR

ITA 614/JPR/2010

• Counselvise Citation: 61423114 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 31-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBASH CHANDRA
• Assessee Lawyers: D B DESAI
• Keywords: Related party transaction; Capital asset; Depreciation; Earning of tax free income; Capital receipt; Revenue expenditure
• Section: 115JB; 10

Judgement Text

1 ITA 614(3)-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 614, 615 & 635/JP/2010 ASSTT. YEAR : 2004-05, 05-06 & 06-07. THE ACIT, CIRCLE-2, VS. SHREE CEMENT LTD., AJMER. BANGUR NAGAR, MASUDA ROAD, BEAWAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBASH CHANDRA RESPONDENT BY : SHRI D.B. DESAI & SHRI VIJAY S HAH DATE OF HEARING : 18.8.2011 DATE OF PRONOUNCEMENT : 09.9.2011. ORDER DATE OF ORDER : 09/09/2011. PER R.K. GUPTA, J.M. THESE ARE THREE APPEALS, FILED BY THE REVENUE AGAIN ST THE ORDERS OF CIT (APPEALS), AJMER RELATING TO ASST. YEARS 2004-05, 2005-06 AND 2006-07. 2. THE COMMON ISSUES RAISED BY THE DEPARTMENT IN AL L THE APPEALS, ARE RELATED TO DELETION OF ADDITION OF SALES TAX INCENTIVE BY TREA TING IT AS CAPITAL RECEIPT AND EXCLUSION THEREOF IN COMPUTING BOOK PROFIT U/S 115JB. APART F ROM THIS, THERE IS ONE MORE ISSUE IN A.Y. 2006-07 WITH REGARD TO ALLOWABILITY OF LONG-TE RM CAPITAL LOSS ON SALE OF LAND. SINCE SIMILAR ISSUES ARE INVOLVED IN ALL THE APPEALS; THE REFORE, THEY ARE DISPOSED OFF BY THIS SINGLE ORDER. 2 3. THE LD DR HAS FILED TWO WRITTEN SUBMISSIONS, ONE ON 21-06-2011 AND ANOTHER SUBMISSION ON 18-08-2011. THE LD COUNSEL OF THE ASS ESSEE ALSO FILED SUMMARY OF KEY SUBMISSIONS SHOWING GROUND WISE DISPUTE FOR ALL THE THREE YEARS UNDER APPEAL ON 18-08- 2011. THE APPEALS OF THE DEPARTMENT ARE NOW DISPOSE D OFF IN THE FOLLOWING MANNER. 4. WE WILL FIRST TAKE UP THE APPEAL FILED BY THE DE PARTMENT FOR A.Y. 2004-05 IN ITA NO. 614/JP/10. 5. GROUND NO. 1 IS AGAINST TREATMENT OF SALES TAX I NCENTIVE AS CAPITAL RECEIPT. 5.1 ADDITIONAL GROUND HAS BEEN TAKEN BY DEPARTMENT VIDE APPLICATION DATED 09-12- 2010, FILED ON 21-06-2011 AGAINST EXCLUSION OF SALE S TAX INCENTIVE IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 6. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. ASSESSEE HAS BEEN GRANTED SUBSIDY IN THE FORM OF SALES TAX EXEMPTION UNDER RA JASTHAN INCENTIVE SCHEME OF 1998 FOR SUBSTANTIAL EXPANSION OF ITS BEAWAR UNIT [20 MT PA TO 26 MTPA], IN AREA OTHER THAN BANNED AREA AS SPECIFIED IN THE SCHEME, IN THE STAT E OF RAJASTHAN, BASED ON ELIGIBILITY CERTIFICATE DATED 12-09-2002 QUANTIFYING THE SUBSID Y ELIGIBLE UNDER THE SAID SCHEME AT RS. 157.28 CRS. [BEING ELIGIBLE FIXED CAPITAL INVESTMEN T INCURRED FOR EXPANSION] TO BE GRANTED IN THE FORM OF SALES TAX EXEMPTION AND TO BE AVAILE D OVER A PERIOD OF 11 YEARS. THUS ON 12-09-2002, THE ASSESSEE BECAME ENTITLED TO THE SAL ES TAX INCENTIVE TO THE TUNE OF 157.28 CRS. TO BE AVAILED OVER NEXT 11 YEARS. A.Y. 2003-04 WAS THE FIRST YEAR OF EXEMPTION UNDER THIS SCHEME AND THE YEAR IN APPEAL, THAT IS, AY 200 4-05, IS THE 2 ND YEAR FOR THE SAME UNIT & UNDER THE SAME SCHEME. THE FACTS IN THE TWO YEARS ARE THUS IDENTICAL. FOR A.Y. 2004- 05, THE ASSESSEE HAS AVAILED RS. 21,92,36,206/- AS SALES TAX EXEMPTION, WHICH HAS BEEN CLAIMED AS CAPITAL RECEIPT IN COMPUTING TOTAL INCOM E UNDER REGULAR PROVISIONS OF THE ACT 3 AND ON THE SAME GROUND, EXCLUDED IN COMPUTING BOOK PROFIT U/S 115JB. IN THE ORDER U/S 143(3), BOTH THE CLAIMS WERE DISALLOWED BY THE A.O. HOWEVER, CIT(A) HAS ALLOWED BOTH THE CLAIMS OF THE ASSESSEE AND DELETED THE DISALLOW ANCE RELYING UPON THE DECISION OF HONBLE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 20 03-04 WHICH IS THE FIRST YEAR OF THIS CLAIM. 7. WE SHALL TAKE UP GROUND NO.1 FIRST. 8. THE LD DR IN ITS WRITTEN SUBMISSION FILED ON 21- 06-2011 HAS SUBMITTED AS UNDER: THIS LD CIT(A) WHILE DECIDING THE ISSUE HAS RELIED UPON THE DECISION OF THE HONBLE TRIBUNAL IN ASSESSEES CASE FOR A.Y. 20 03-04. MOST RESPECTFULLY IT IS SUBMITTED THAT THE DECISION OF T HE HONBLE TRIBUNAL HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL BEFORE T HE HONBLE JURISDICTIONAL HIGH COURT HAS BEEN PREFERRED. ON BE HALF OF THE APPELLANT, RELIANCE IS PLACED UPON THE FINDINGS AND OBSERVATIO NS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDERS, THE SAM E ARE NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. 8.1 AGAIN VIDE ITS WRITTEN SUBMISSION FILED ON 18-0 8-2011, THE LD DR HAS FILED A DETAILED WRITTEN SUBMISSION WHICH IS REPRODUCED HER E-WITH AS BELOW: THE LD CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR O F THE ASSESSEE COMPANY HAS RELIED UPON THE DECISION OF THE HONBLE ITAT IN ASSESSEE OWN CASE FOR A.Y 03-04. THE APPEAL FOR THE SAID ORDER IS PENDING BEFORE THE HONBLE JURISDICTIONAL HIGH COURT. HOWEVER, MOST RESPECTFUL LY, I WOULD LIKE TO BRING THE FOLLOWING FACTS FOR KIND CONSIDERATION OF HONB LE MEMBERS, ON THE SUBJECT. 4 THEREAFTER, THE LD. CIT D/R HAS DISCUSSED IN HIS WR ITTEN SUBMISSION THE FACTS IN BRIEF, WHICH WE HAVE ALREADY SUMMARIZED IN EARLIER PARA OF THIS ORDER. IN THE WRITTEN SUBMISSION, THE LD. CIT D/R HAS FURTHER STATED HIS ARGUMENTS IN THE FOLLOWING MANNER : THE ASSESSEE COMPANY HAS COLLECTED THE SALES TAX FROM ITS CUSTOMERS AGAINST SALES OF MANUFACTURED GOODS AND CREDITED TH E SAME IN ITS BOOKS OF ACCOUNT. HERE THE SOURCE OF SUBSIDY IS SALES TAX, C OLLECTED FROM THE CUSTOMERS AGAINST SALES OF GOODS IS IN THE NATURE O F REVENUE AND THE ASSESSEE HAS CREDITED ITS BOOKS OF ACCOUNT ACCORDINGLY. IN V IEW OF THESE FACTS, THE SAME WAS LIABLE TO BE TREATED AS REVENUE RECEIPT FO R THE PURPOSE OF COMPUTING NORMAL INCOME AS WELL AS BOOK PROFIT, AS PER PROVISION OF SECTION 115JB OF I.T ACT 1961. THIS VIEW GETS SUPPORT FROM DECISION OF THE HONBLE S.C IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD . (1997) 228 ITR 0253 (SC), WHERE IN HONBLE SUPREME COURT, INTER ALIA, H ELD AS UNDER: IF PAYMENTS IN THE NATURE OF SUBSIDY FROM PUBLIC F UNDS ARE MADE TO THE ASSESSEE TO ASSIST HIM IN CARRYING ON HIS TRADE OR BUSINESS, THEY ARE TRADE RECEIPTS. THE CHARACTER OF THE SUBSIDY IN THE HAND S OF THE RECIPIENT-WHETHER REVENUE OR CAPITAL WILL HAVE TO BE DETERMINED, HAVI NG REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. THE SOURCE OF THE F UND IS QUITE IMMATERIAL. HOWEVER, IF THE PURPOSE IS TO HELP THE ASSESSEE TO SET UP ITS BUSINESS OR COMPLETE A PROJECT THE MONIES MUST BE TREATED AS HA VING BEEN RECEIVED FOR CAPITAL PURPOSES. BUT IF MONIES ARE GIVEN TO THE AS SESSEE FOR ASSISTING HIM IN CARRYING OUT THE BUSINESS OPERATIONS AND THE MONEY IS GIVEN ONLY AFTER AND CONDITIONAL UPON COMMENCEMENT OF PRODUCTION, SUCH S UBSIDIES MUST BE TREATED AS ASSISTANCE FOR THE PURPOSE OF THE TRADE. A NOTIFICATION WAS ISSUED BY THE ANDHRA PRADESH GO VERNMENT THAT CERTAIN FACILITIES AND INCENTIVES WERE TO BE GIVEN TO ALL THE NEW INDUSTRIAL UNDERTAKINGS, WITH INVESTMENT CAPITAL (EXCLUDING WORKING CAPITAL) NOT EXCEEDING RS. 5 CRORES. THE INCENTIVES WERE TO BE A LLOWED FOR A PERIOD OF 5 FIVE YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCT ION. CONCESSION WAS ALSO AVAILABLE FOR SUBSEQUENT EXPANSION OF 50 PER C ENT. AND ABOVE OF EXISTING CAPACITIES, .. THE INCENTIVES WOULD BE LIMITED TO A PERIOD OF FIV E YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION; THE INCENTIVES WERE TO BE GIVEN BY WAY OF REFUND OF SALES TAX .. THE ASSESSEE WAS FREE TO USE THE MONEY IN ITS BUSI NESS ENTIRELY AS IT LIKED AND WAS NOT OBLIGED TO SPEND THE MONEY FOR A PARTICULAR PURPOSE. THE SUBSIDIES HAD NOT BEEN GRANTED FOR PRODUCTION OF, O R BRINGING INTO EXISTENCE ANY NEW ASSET. THE SUBSIDIES WERE GRANTED YEAR AF TER YEAR, ONLY AFTER THE SETTING UP OF THE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION. SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN F OR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE. THE SU BSIDIES WERE OF REVENUE NATURE AND WOULD HAVE TO BE TAXED ACCORDINGLY. THE FACTS OF THE ABOVE CASE ARE EXACTLY MATCHING WI TH THE CASE OF THE ASSESSEE UNDER QUESTION. IN THIS CASE ALSO THE ASSE SSEE HAS EXPANDED ITS INSTALLED CAPACITY BY MORE THAN 25% OF EXISTING CAP ACITY AND SALES TAX EXEMPTION WAS ALLOWED FROM DATE OF FIRST SALE AND N OT MERE SETTING UP / EXPANDING OF NEW UNITS. THIS MEANS THAT EXEMPTION H AS BEEN ALLOWED BY THE GOVERNMENT BY WAY OF SALES TAX SUBSIDY, ONLY AF TER STARTING ITS COMMERCIAL PRODUCTION TO ASSIST IT IN CARRYING ON I TS TRADE OR BUSINESS. THIS FACT GET SUPPORTS FROM THE DECISION OF THE HONBLE ITAT BENCH D DELHI IN I.T APPEAL NO. 1404(DEL) OF 2007 IN THE CASE OF M/S L G ELECTRONICS INDIA PVT. LTD. V/S ADDL. CIT RANGE-4, NEW DELHI, W HICH INTER ALIA HELD THAT THE SALES TAX SUBSIDY AVAILED BY THE ASSESSEE IS A REVENUE RECEIPT SINCE IT IS NOT LINKED WITH SETTING UP OF INDUSTRY RATHER LINKE D WITH THE PRODUCTION AND FIRST SALE MEANS ASSESSEE HAS COLLECTED THIS AMOUNT EMBODIED IN DEALER PRICE IN ORDINARY COURSE OF BUSINESS AND THE DECISI ON OF THE SPECIAL BENCH IN THE CASE OF RELIANCE INDUSTRIES IS NOT APPLICABLE T O THE FACTS OF THE CASE. 6 IN SPITE OF THESE FACTS, THE ASSESSEE HAS TREATED T HE SALES TAX SUBSIDY AS CAPITAL RECEIPT, BY CLAIMING THE FACT THAT RST/CST EXEMPTION SCHEME 1998 IS MEANT FOR ACQUIRING NEW ASSETS TO EXPAND THE EXI STING BUSINESS. IT HAS FURTHER RELIED ON THE 2 MAJOR DECISION OF THE HONB LE S.C IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD. (2003) 260 ITR 0605 (MAD.) AND DECISION OF THE SPECIAL BENCH IN THE CASE OF RELIANCE INDUST RIES (2003-TIOL-14- ITAT-MUM-SB). THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F PONNI SUGARS & CHEMICAL LTD., A.Y. 89-90, IS NOT MATCHING WITH THE FACTS OF THE CASE UNDER QUESTION, AS THE INCENTIVE/SUBSIDY PROVIDED UNDER T HE SCHEME WAS EXCLUSIVELY FOR THE PURPOSE OF REPAYMENT OF LOAN BO RROWED FROM PUBLIC FINANCIAL INSTITUTIONS, FOR ACQUIRING FIXED ASSETS (USED FOR NEW/EXPANSION OF BUSINESS). THE ASSESSEE WAS LIABLE TO SUBMIT EVERY YEAR (BY 31 ST DEC.) SUBSIDY UTILIZATION CERTIFICATE FROM C.A. TO SHOW T HAT THE MONIES HAD BEEN SO UTILIZED. FAILURE TO SUBMIT THE UTILIZATION CERT IFICATE WOULD RESULT NOT ONLY IN THE TERMINATION OF SCHEME BUT ALSO IN RECOVERY O F INCENTIVE/SUBSIDY ALLOWED TO THE ASSESSEE. WHEREAS IN THE CASE OF ASS ESSEE SUCH CONDITIONS ARE NOT APPLICABLE. SECONDLY, THE HONBLE SUPREME COURT HAS DECIDED THIS ISSUES FOR A.Y 89-90 I.E. PRIOR TO INTRODUCTION OF PROVISION OF EXPLANATION 10 OF SECTION 43(1) OF I.T. ACT 1961. LIKEWISE THE DECISION OF HONBLE SPECIAL BENCH, ITAT, MUMBAI IN THE CASE OF RELIANCE INDUSTRIES (A.Y 85- 86) WHICH IS ALSO NOT APPLICABLE IN THE CASE UNDER QUESTION FOR THE FACTS DISCUSS ABOVE AND ALSO IN THE LIGHT OF DECISION OF HONBLE ITAT, BENCH D DELHI IN THE CASE OF M/S L.G ELECTRONICS INDIA LTD. ADDL. CIT, RANGE-4 DELHI(2010) TIOL-222-ITAT-DEL. NOW, THE QUESTIONED ARISE THAT IF THE ASSESSEE COMP ANY HAS TREATED THE S.T SUBSIDY AS CAPITAL RECEIPT, ON THE GROUND THAT THE SAME HAS BEEN RECEIVED AGAINST INVESTMENT MADE IN THE ELIGIBLE FIXED ASSET S FOR EXPANDING OF ITS EXISTING BUSINESS, THEN HOW COME THE ASSESSEE COMPA NY HAS NOT REDUCED 7 SUCH SUBSIDY (CLAIMED TO HAVE BEEN RECEIVED AGAINST ELIGIBLE ASSETS AS PER CERTIFICATE ISSUED BY SALES TAX OFFICER) FROM THE A CTUAL COST OF THE ASSETS, AS THE COST OF THE ASSETS TO THAT EXTEND HAS NOT BEEN MET BY THE ASSESSEE. THESE FACTS HAVE BEEN MADE ABUNDANTLY CLEAR, IN THE EXPLA NATION 10 OF SUB SECTION 1 OF THE SECTION 43 OF IT ACT, 1961, WHICH READ AS UNDER: WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVT. OR A STATE GOVT. OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR A GRANT OR REIMBURSEMENT (BY WHATEVER NA ME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASS ET TO THE ASSESSEE: PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBU RSEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIM BURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS RE IMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. IN SPITE OF THE ABOVE AMENDMENT, WITH EFFECT FROM A .Y.1999-2000, THE ASSESSEE HAS NOT REDUCED SUCH SUBSIDY FROM THE COST OF THE ASSETS, THEREBY CLAIMED EXCESS DEPRECIATION IN THE FORM OF REVENUE EXPENDITURE, IN THE PROFIT & LOSS ACCOUNT. THUS, ON ONE HAND THE ASSESS EE COMPANY HAS NOT CREDITED THE SALES TAX SUBSIDY AS REVENUE INCOME AN D ON OTHER HAND IT HAS CLAIMED REVENUE EXPENDITURE IN THE FORM OF DEPRECIA TION IN RESPECT OF THOSE ASSETS FOR WHICH THE GOVERNMENT HAS MET THE COST BY WAY OF SALES TAX SUBSIDY. IT HAS RESULTED IN EXCESS CLAIM OF DEPRECI ATION IN RESPECT OF THOSE ASSETS FOR WHICH THE ASSESSEE HAS NOT INCURRED THE COST. IN THIS REGARD I WOULD LIKE TO BRING YOUR KIND NOTICE THAT THE INTEN TION OF THE LEGISLATOR FOR AMENDING THE PROVISION OF SECTION 43(1) WAS THAT TH E ASSESSEE SHOULD NOT CLAIM DUAL BENEFITS I.E. ONE BY NOT SHOWING THE SAL ES TAX SUBSIDY AS REVENUE 8 INCOME AND ANOTHER BY CLAIMING DEPRECIATION ON THOS E ASSETS FOR WHICH SUBSIDY HAS BEEN GRANTED BY THE GOVERNMENT. THIS IS CLEAR FROM THE LEGISLATIVE HISTORY - 1998-EXPLANATION 10 WHICH WAS INSERTED BY THE FINANCE (NO.2) ACT, 1998, WITH EFFECT FROM 1-4-1999 .THE BOARD CIRCULAR EXPLAINS THE AMENDMENT IN PARAGRAPH 22.2 IN FOLLOWI NG WORDS: WHERE A PORTION OF THE COST OF AN ASSETS ACQUIRED B Y THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVT. OR A STATE GOVT. OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR A GRANT OR REIMBURSEMENT (BY WHATEVER NA ME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE. COST INCURRED/PAYABLE BY THE ASSESSEE ALONE COULD BE THE BASIS FOR ANY TAX ALLOWANCE. THIS EXPLANATION FURTHER PROVIDES THAT W HERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CA NNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRANT THE SAME PROPORTI ON AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE T O WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLU DED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. EXPLANATION 10 TO SECTION 43(1) WAS INTRODUCED TO N ULLIFY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. P. J. CHEMICALS LTD.(1994) 210 ITR 830, WHERE IT WAS HELD THAT SUBS IDY GRANTED BY THE GOVT. AS AN INCENTIVE FOR SETTING UP INDUSTRIES IN BACKWARD AREA AT AN PERCENTAGE OF COST OF CAPITAL ASSETS IN NOT A PAYME NT FOR MEETING ANY PORTION OF THE COST OF THE CAPITAL ASSETS WITHIN TH E CONTEMPLATION OF SECTION 43(1) OF THE I.T. ACT 1961 AND THE SAME IS NOT TO B E DEDUCTED IN COMPUTATION OF ACTUAL COST OF THE ASSETS FOR THE PU RPOSE OF GRANT OF DEPRECIATION ALLOWANCE, ETC. 9 POSITION OF SUBSIDY UP TO ASSESSMENT YEAR 1998-99: UP TO A.Y. 1998-99 IF THE SUBSIDY WAS GIVEN BY THE GOVT. FOR ANY PARTICUL AR ASSET, IT WAS DEDUCTIBLE FROM THE COST OF THE SAID ASSET, WHEREAS IF A SUBSIDY WAS GIVEN TO SET UP AN INDUSTRIAL UNIT IN A BACKWARD AREA, ETC. IT WAS NOT DEDUCTIBLE FROM THE COST. IT WAS TREATED AS A CAPITAL RECEIPTS. FROM THE ABOVE FACTS IT IS SEEN THAT THE ASSESSEE H AS NOT REDUCED THE COST OF THE ASSETS TO THE EXTENT OF THE SALES TAX SUBSIDY R ECEIVED, THEIR BY CLAIMED EXCESS DEPRECIATION AS EXPLAINED IN THE EARLIER PAR AS. ON THE OTHER HAND, IN SPITE OF CREDITING THE SUBSIDY RECEIVED IN ITS BOOK S OF ACCOUNT, HAS NOT BEEN OFFER FOR TAX UNDER NORMAL COMPUTATION OF INCOME AS WELL AS BOOK PROFIT U/S 115JB OF THE I.T. ACT. KEEPING IN VIEW, THE ABOVE F ACTS, THE SUBSIDY RECEIVED BY THE ASSESSEE IS REVENUE IN NATURE AND T HEREFORE, LIABLE TO BE ASSESSED AS REVENUE RECEIPTS IN ALL THE THREE ASSES SMENT YEARS, UNDER REFERENCE. 8.2 THE LD. D/R FAIRLY ADMITTED THAT THIS GROUND IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE TRI BUNAL IN ASSESSEES CASE FOR A.Y. 2003-04. HE, HOWEVER, REITERATED HIS ARGUMENTS STATED IN HIS 1 ST SUBMISSION FILED ON 21-06-2011 THAT REVENUE HAS NOT ACCEPTED THE DECISI ON OF THE TRIBUNAL AND APPEAL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT HAS BEEN PREF ERRED. HE THEREFORE PLACED RELIANCE UPON THE FINDINGS AND OBSERVATIONS MADE BY THE A.O. IN THE ASSESSMENT ORDERS. IN HIS 2 ND SUBMISSION FILED ON 18-08-2011, THE LD D/R HAS RAIS ED FURTHER ISSUES AS REPRODUCED HERE IN ABOVE. 9. ON THE OTHER HAND, THE LD COUNSEL FOR THE ASSESS EE FILED A CHART CONTAINING THE KEY SUBMISSIONS AND THE PRECEDENCE IN ITS OWN CASE. IN THE WRITTEN KEY SUBMISSION, THE LD. COUNSEL HAS EXPLAINED THE BRIEF FACTS WHICH WE HAVE ALREADY SUMMARIZED HEREINABOVE IN 10 THIS ORDER. THEREAFTER, THE LD. COUNSEL OF THE ASS ESSEE HAS MADE HIS KEY SUBMISSIONS IN WRITING IN THE FOLLOWING MANNER : I. ASSESSEES KEY SUBMISSIONS A. PRECEDENT SQUARELY COVERED IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF HONBLE JAIPUR TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 200 3-04 VIDE ORDER DATED 23-12-2009 IN ITA NO. 942/JP/2008. HONBLE TRIBUNAL HAVE EXAMINED THE SCHEME IN GREAT DEPTH & GIVEN FOLLOWING KEY FINDING S:- (I) THE PURPOSE OF GRANTING INCENTIVE WAS TO ACCELERA TE THE INDUSTRIAL GROWTH AND INCREASE EMPLOYMENT. (II) HONBLE TRIBUNAL HAS RELIED UPON CIT VS.- PONNI SU GARS & CHEMICALS LTD. (2008) 306 ITR 392 (SC) AND HELD THA T WHETHER ANY INCENTIVE IS CAPITAL OR REVENUE WOULD DEPEND UPON T HE PURPOSE FOR WHICH SUBSIDY IS GRANTED. IF THE PURPOSE OF THE S UBSIDY IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY TH EN THE INCENTIVE IS ON REVENUE ACCOUNT AND IF THE OBJECT OF THE SUBSIDY IS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR EXPAND THE EXISTIN G UNIT THEN THE INCENTIVE IS ON CAPITAL ACCOUNT. (III) BASED ON THE PURPOSE TEST AS TO WHY THE INCENTIVE H AS BEEN GRANTED, THE HONBLE TRIBUNAL HAVE HELD THAT INCENTIVE BY WA Y OF SALES TAX EXEMPTION IS PROVIDED TO THE APPELLANT TO SET UP A NEW UNIT OR CARRY OUT EXPANSION AND NOT FOR RUNNING THE BUSINESS MORE PROFITABLY. IN DECIDING, THE HONBLE TRIBUNAL ALSO RELIED UPON DEC ISION OF SPECIAL BENCH OF MUMBAI ITAT IN THE CASE OF DCIT VS.- REL IANCE INDUSTRIES LTD. (2004) 88 ITD 273 (MUM) (SB). IT HA S FURTHER HELD THAT THE FACTS BEFORE THE SPECIAL BENCH ARE IDENTIC AL WITH THOSE OF THE RESPONDENT. HENCE, FOLLOWING THE DECISION IN THE CA SE OF PONNI SUGARS 11 (SUPRA) & RELIANCE INDUSTRIES (SUPRA), THE INCENTIV E IN THE PRESENT CASE HAS BEEN HELD AS CAPITAL RECEIPT. B. ISSUE ALSO COVERED IN FAVOUR OF THE ASSESSEE BY VAR IOUS OTHER COURTS PRESENT ISSUE IS ALSO SETTLED IN FAVOUR OF ASSESSEE BY FOLLOWING JUDICIAL PRONOUNCEMENTS OF THE APEX COURT, VARIOUS HIGH COUR TS AND SPECIAL BENCH DECISION OF ITAT AS BELOW:- SUPREME COURT - CIT VS- PONNI SUGAR & CHEMICALS LTD. (2008) 306 IT R 393 (SC) HIGH COURTS - CIT VS.- RELIANCE INDUSTRIES LTD (ITA NO. 1299 OF 2008((BOM) - CIT VS.- SIYA RAM GARG (HUF) (2011) 237 CTR 321 (P &H) - SHREE BALAJI ALLOYS AND OTHERS VS CIT (2011) 239 CT R 70 (J&K) - CIT VS.- RASOI LIMITED (ITA NO. 258 OF 2001)(CAL) - CIT VS.- EVEREST INDUSTRIES LTD (ITA NO. 1241 OF 2 010)(BOM) ITAT SPECIAL BENCH - DCIT VS RELIANCE INDUSTRIES LTD. (2003) 88 ITD 273 (MUM)(SB) 9.1 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE J AIPUR TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 VIDE ORDER DATED 23-12-2009 IN ITA NO. 942/JP/2008. HE FURTHER SUBMITTED THAT IN THE ABOVE ORDER, THE HONBLE TRIB UNAL HAS DULY CONSIDERED THE PURPOSE FOR WHICH SUBSIDY WAS GIVEN AND ALSO DISCUSSED EACH & EVERY ISSUE AS RAISED BY THE LD DR AND ONLY THEREAFTER HAS COME TO THE CONCLUSION T HAT THE PURPOSE TEST AS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF SAHNEY STEEL AND PONNI SUGAR ARE DULY SATISFIED IN THE PRESENT FACTS OF THE ASSESSEE AS THE SUBSIDY IN QUESTION HAS BEEN PROVIDED TO THE ASSESSEE TO SET UP NEW UNIT OR CARRY OUT EXPANSION OF EXISTING UNIT AND NOT FOR RUNNING THE 12 BUSINESS MORE PROFITABLY. THE LD DR HAS NOT BROUGHT ANY NEW FACTS ON RECORD. FURTHER, THE SUBSIDY RECEIVED IN THE CURRENT YEAR IS UNDER T HE SAME SCHEME AND FOR THE SAME UNIT, WHICH HAS BEEN CONSIDERED BY THE HONBLE TRIBUNAL F OR A.Y. 2003-04. THIS BEING THE 2 ND YEAR FOR AVAILMENT OF EXEMPTION, THE ISSUE IS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2003-04. LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE DECISION IN THE CA SE OF L.G. ELECTRONICS (SUPRA) IS CLEARLY DISTINGUISHABLE ON FACTS. THE LD. COUNSEL ALSO PLAC ED RELIANCE ON THE CBDT CIRCULAR NO. 142 DATED 01-08-1974 WHEREIN BOARD HAS CLARIFIED TH AT WHERE THE SUBSIDY IS PRIMARILY GIVEN FOR HELPING THE GROWTH OF INDUSTRIES AND NOT FOR SUPPLEMENTING THEIR PROFITS, SUCH SUBSIDY SHALL BE REGARDED AS CAPITAL RECEIPT IN THE HANDS OF THE RECIPIENT. 9.2 AS FAR AS ISSUE FOR NON-EXCLUSION OF ABOVE SUBS IDY FROM THE BLOCK OF ASSETS FOR CLAIMING DEPRECIATION IS CONCERNED, THE LD COUNSEL SUBMITTED THAT THE LD DR HAS RAISED AN ADDITIONAL ISSUE WHICH IS NEITHER ARISING FROM T HE GROUNDS OF APPEAL NOR FROM ADDITIONAL GROUND FILED BEFORE THE HONBLE BENCH. H ENCE, THE ABOVE ISSUE CANNOT BE RAISED NOW. WITHOUT PREJUDICE, EVEN ON MERIT THE CO NTENTION OF THE DEPARTMENT IS NOT TENABLE AS THE ABOVE ISSUE IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE BY THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF GODREJ AGROVET CARE LTD VS- ACIT (2009) IN ITA NO. 6807/MUM/06 AS WELL AS THAT OF VISAKHAPATNAM TRIBUN AL IN THE CASE OF SASISRI EXTRACTIONS LTD VS- ACIT (2010) 122 ITD 428 (VIZAG ). HENCE, THE CONTENTIONS RAISED BY THE LD DR ARE NOT TENABLE. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND THE DEC ISIONS RELIED UPON BY BOTH SIDES. WE HAVE ALSO EXAMINED THE ORDERS OF AUTHORITIES BEL OW AS WELL AS OTHER MATERIALS ON RECORD. THE OMISSION OF REFERENCE TO SOME OF THE CA SES IN THE ORDER IS EITHER DUE TO THEIR 13 IRRELEVANCE OR TO RELIEVE THE ORDER FROM REPETITIVE NATURE OF THE DECISIONS. DURING THE COURSE OF THE HEARING, THE LD DR WAS SPECIFICALLY A SKED TO CLARIFY AS TO WHETHER HE WOULD LIKE TO POINT OUT ANY NEW FACTS AS COMPARED TO FACT S IN THE PRECEDING YEAR I.E. A.Y. 2003- 04 OR NOT. TO THE ABOVE, LD DR FAIRLY ADMITTED THAT THE FACTS ARE IDENTICAL AS COMPARED TO LAST YEAR. 10.1 WE HAVE CAREFULLY GONE THROUGH THE ORDER OF TH IS BENCH IN ITA NO. 942/JP/2008 FOR A.Y. 2003-04. ON PERUSAL OF THE SAME, IT IS NOT ED THAT THE TRIBUNAL HAS EXAMINED THE SCHEME (COPY OF WHICH IS FILED AT PAGE 1-22 OF PAPE R BOOK) IN GREAT DEPTH, CONSIDERED THE RELEVANT DECISIONS RELIED UPON BY THE LD DR AND THE REAFTER HAVE COME TO FOLLOWING CONCLUSIONS :- (A) THAT THE OBJECTIVE BEHIND GRANTING OF SALES TAX EXE MPTION IN THE PRESENT CASE IS INCENTIVE FOR INDUSTRIALIZATION AND EMPLOYM ENT GENERATION AS COULD BE SEEN FROM VARIOUS CLAUSES OF THE RAJASTHAN SALES TAX EXEMPTION SCHEME. ON PERUSAL OF THE SCHEME IT COULD BE NOTED THAT - (I) THE SUBSIDY IS AVAILABLE TO UNITS WHICH ARE ESTABLISHED IN THE AREAS OTHER THAN BANNED AREAS, (II) THE SUBSIDY IS AVAILABLE ONLY IF THE UN IT PROVIDES EMPLOYMENT TO RESIDENTS OF RAJASTHAN TO THE EXTENT OF 70% OF ITS WORK FORCE, (III) SUBSIDY SHALL BE GRANTED TO UNITS WHICH MAKES FIXED CAPITAL INVESTMENT AS SPECIFIED UNDER THE SCHEME (IV) SUBSIDY IS AVAILABLE ONLY ON SETTING UP OF NEW UNITS OR ON CARRYING OUT SUBSTANTIAL EXPANSION OF THE UNI TS, AS SPECIFIED UNDER THE SCHEME. HENCE, THE PURPOSE OF GRANTING INCENTIVE WAS TO INCENTIVIZE SETTING UP OF A NEW UNIT OR CARRYING OUT EXPANSION OF EXISTING UNIT AND NOT FOR RUNNING THE BUSINESS MORE PROFITABLY. (B) THE TRIBUNAL RELYING UPON THE DECISION OF SUPREME C OURT IN THE CASE OF CIT VS.- PONNI SUGARS & CHEMICALS LTD. (2008) 306 ITR 392 (SC) HAVE 14 HELD THAT WHETHER ANY INCENTIVE IS CAPITAL OR REVEN UE WOULD DEPEND UPON THE PURPOSE FOR WHICH SUBSIDY IS GRANTED. IF THE PURPOSE OF THE SUBSIDY IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE INCENTIVE IS ON REVENUE ACCOUNT AND IF THE OBJECT O F THE SUBSIDY IS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR EXPAND THE EXI STING UNIT THEN THE INCENTIVE IS ON CAPITAL ACCOUNT. THIS IS ALSO EQUAL LY SUPPORTED BY THE DECISION OF THE APEX COURT IN THE CASE OF SAHNEY ST EEL (SUPRA). (C) IN THE FACTS OF THE ASSESSEES CASE, THE DECISION O F THE APEX COURT IN THE CASE OF PONNI SUGARS (SUPRA) AS WELL AS SAHNEY STEE L (SUPRA) SUPPORTS THE CASE OF THE ASSESSEE AND NOT THAT OF THE REVENUE. (D) BASED ON THE PURPOSE TEST AS TO WHY THE INCENTIVE HAS BEEN GRANTED, THE TRIBUNAL HAVE HELD THAT INCENTIVE BY WAY OF SALES T AX EXEMPTION IN THE PRESENT CASE IS PROVIDED TO THE ASSESSEE TO SET UP A NEW UNIT OR CARRY OUT EXPANSION AND NOT FOR RUNNING THE BUSINESS MORE PRO FITABLY. (E) IN DECIDING, THE TRIBUNAL ALSO RELIED UPON DECISION OF SPECIAL BENCH OF MUMBAI ITAT IN THE CASE OF DCIT VS.- RELIANCE IND USTRIES LTD. (2004) 88 ITD 273 (MUM) (SB). IT HAS FURTHER HELD THAT THE FACTS BEFORE THE SPECIAL BENCH ARE IDENTICAL WITH THOSE OF THE ASSES SEE. HENCE, FOLLOWING THE DECISION IN THE CASE OF PONNI SUGARS (SUPRA) & RELIANCE INDUSTRIES (SUPRA), THE INCENTIVE IN THE PRESENT CASE HAS BEEN HELD AS CAPITAL RECEIPT. 10.2 FOR FEAR OF REPETITION, WE ARE NOT RECITING DO WN THE IN-DEPTH FINDINGS OF THE TRIBUNAL FOR A.Y. 2003-04. ON THE STRENGTH OF CLEAR FINDING OF FACTS, THE TRIBUNAL HAS COME TO THE CONCLUSION THAT THE SUBSIDY IN QUESTION IS TO BE TREATED AS CAPITAL RECEIPT RELYING UPON THE PRINCIPLES LAID DOWN BY THE APEX C OURT. THERE ARE NO CHANGES IN THE FACTS FOR THE CURRENT YEAR WITH THAT OF EARLIER YEA R. 15 LD. D/R IN HIS SUBMISSION HAS VERY FORCEFULLY ADVAN CED HIS ARGUMENTS THAT SINCE THE SOURCE OF SUBSIDY IS SALES TAX, WHICH IS COLLEC TED AGAINST SALES OF GOODS AND AFTER COMMENCEMENT OF COMMERCIAL PRODUCTION, IT IS LIABLE TO BE TREATED AS REVENUE RECEIPT. HOWEVER, WE ARE UNABLE TO AGREE WITH THE ABOVE PROP OSITION SOUGHT TO BE ADVANCED, AS HONBLE APEX COURT IN PONNI SUGARS (SUPRA) HAVE CLE ARLY HELD THAT THE POINT OF TIME AT WHICH SUBSIDY IS PAID, SOURCE OF SUBSIDY AND THE FO RM OF SUBSIDY ARE IMMATERIAL. CHARACTER OF THE RECEIPT IN THE HANDS OF ASSESSEE H AS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH SUBSIDY IS GIVEN. THE LINKAGE OF THE INCENTIVE FOR QUANTIFICATION, TO PRODUCTION, SALE ETC. IS TO ENSURE THAT ONLY BONAFI DE EXPANSION UNITS GET THE INCENTIVE FOR THE EXPANSION. THE ABOVE REASONING OF THE LD. DR. I S ALSO NOT TENABLE IN VIEW OF THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CIT VS - UDUPI BUILDERS (P) LTD. (2010) 319 ITR 440 (KAR) WHEREIN THE HONBLE HIGH COURT AF TER CONSIDERING THE DECISION OF APEX COURT IN THE CASE OF SAHNEY STEEL (SUPRA) HAS HELD THAT THE FACT THAT SUBSIDY HAS BEEN RECEIVED AFTER THE COMMERCIAL PRODUCTION HAS S TARTED HAS NO RELEVANCE IN DECIDING THE NATURE OF THE SUBSIDY. THE DECISION IN THE CASE OF SAHNEY STEEL (SUPRA) HA S BEEN FULLY EXAMINED EXPLAINED AND CONSIDERED BY SPECIAL BENCH IN THE CA SE OF RELIANCE INDUSTRIES (SUPRA), WHICH IN TURN HAS BEEN RELIED UPON BY TRIBUNAL IN A SSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING AY, I.E. AY 2003-04, IN OUR C ONSIDERED VIEW, THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS ( SUPRA) AS WELL AS SAHNEY STEEL (SUPRA) WOULD SUPPORT THE CASE OF THE ASSESSEE RATH ER THAN REVENUE. THE DECISION AS RELIED UPON BY THE LD. DR IN THE CA SE OF LG ELECTRONICS (SUPRA) IS ALSO CLEARLY DISTINGUISHABLE ON FACTS AS IN THE SAI D CASE, THE TRIBUNAL HAS GIVEN CATEGORICAL 16 FINDING OF FACT THAT THERE WAS NOTHING ON RECORD TO SHOW THAT SALES TAX EXEMPTION WAS GRANTED FOR ACQUIRING OF CAPITAL ASSETS OR FOR SETT ING UP OF THE ELIGIBLE UNIT [PARA 11 & AGAIN AT PARA 12.5]. IN THE PRESENT CASE, TRIBUNAL IN AY 2003-04 HAS GIVEN CLEAR FINDING OF FACT THAT PURPOSE OF GRANTING INCENTIVE WAS TO INCENTIVIZE SETTING UP OF A NEW UNIT OR CARRYING OUT EXPANSION OF EXISTING UNIT AND NOT FOR RUNNING THE BUSINESS MORE PROFITABLY. HENCE, WE FIND NO REASON FOR DEPARTING FROM THE DEC ISION TAKEN BY HONBLE TRIBUNAL IN IMMEDIATELY PRECEDING ASSESSMENT YEAR. INCIDENTALLY, AS RECORDED IN PARA 9 HERE IN ABOVE, HONBLE BOMBAY, P&H, J&K & CALCUTTA HIGH COURTS HAVE ALSO TAKEN SIMILAR VIEW A ND THE SAME FULLY SUPPORTS THE CASE OF THE ASSESSEE. FURTHER AS RIGHTLY POINTED OUT BY LD. COUNSEL FOR THE ASSESSEE, CBDT VIDE CIRCULAR NO. 142 DATED 01-08-1974 HAS ALSO CLARIFIE D THAT SUBSIDY GIVEN FOR HELPING THE GROWTH OF INDUSTRIES AND NOT FOR SUPPLEMENTING THEI R PROFITS WOULD CONSTITUTE CAPITAL RECEIPT. IT HAS BEEN TIME AND AGAIN HELD BY APEX CO URT, INCLUDING IN THE CASE OF CIT VS- INDIAN OIL CORPORATION LTD (2004) 267 ITR 272 (SC) THAT CIRCULARS ISSUED BY CBDT ARE BINDING ON REVENUE AND IT IS NOT OPEN TO THE REVENU E EVEN TO RAISE A CONTENTION CONTRARY TO THE BINDING CIRCULAR. 10.3 IN THE LIGHT OF THE AFORESAID, WE HAVE NO HESI TATION IN HOLDING THAT SALES TAX INCENTIVE AVAILED BY THE ASSESSEE IS CAPITAL RECEIP T AND CIT(APPEALS) WAS CORRECT IN DELETING THE ADDITION MADE BY THE AO ON THIS ACCOUN T. THIS GROUND OF THE DEPARTMENT IS THUS DISMISSED. 10.4 BEFORE MOVING TO THE NEXT GROUND, LET US DEAL WITH A NEW CONTENTION RAISED BY THE LD D/R THAT THE ABOVE INCENTIVE, IF TREATED AS CAPI TAL RECEIPT, HAS TO BE REDUCED FROM COST OF ASSETS IN TERMS OF EXPLANATION 10 TO SEC 43(1). WE FIND THAT THE SAID ISSUE IS NEITHER 17 ARISING FROM THE ORIGINAL GROUND NOR FROM THE ADDIT IONAL GROUND FILED BY THE REVENUE. NO LEAVE HAS ALSO BEEN TAKEN FROM THE TRIBUNAL FOR THE SAME. HENCE THIS NEW CONTENTION CANNOT BE ADMITTED AT THIS STAGE. 10.5 EVEN ON MERITS THE ABOVE ISSUE IS COVERED IN F AVOUR OF THE ASSESSEE VIDE THE DECISION OF THE HONBLE VISAKHAPATNAM TRIBUNAL IN T HE CASE OF SASISRI EXTRACTIONS LTD. VS.- ACIT (2008) 307 ITR (AT) 127 (VIZAG) AS WELL A S BY THE DECISION OF HONBLE MUMBAI TRIBUNAL IN THE CASE OF GODREJ AGROVET LTD. VS.- ACIT (2009) IN ITA NO. 6807/MUM./06. IN BOTH THE DECISIONS, IT HAS BEEN HE LD THAT ONLY IF THE SUBSIDY OR OTHER GRANT WAS GIVEN TO OFFSET THE COST OF AN ASSET, SUC H PAYMENT WOULD BE COVERED BY EXPLANATION 10 TO SEC. 43(1). IN A CASE WHERE SUBSI DY IS RECEIVED AS AN INCENTIVE FOR SETTING UP OR EXPANSION OF NEW UNIT, THE MERE FACT THAT SPECIFIED PERCENTAGE OF FIXED CAPITAL COST WAS TAKEN AS THE BASIS FOR DETERMINING THE SUBSIDY, IT SHOULD NOT BE MISTAKEN AS A PAYMENT INTENDED TO SUBSIDIZE THE COST OF FIXE D ASSETS. IN THE PRESENT CASE, THE OBJECTIVE IS INDUSTRIALIZATION & EMPLOYMENT GENERAT ION AND ONLY FOR THE PURPOSE OF QUANTIFICATION OF SUBSIDY, IT IS LINKED WITH ELIGIB LE FIXED CAPITAL INVESTMENT. SUCH CASE IS NOT COVERED BY EXPLANATION 10 TO SEC. 43(1) AS HELD BY HONBLE MUMBAI AND VISAKHAPATNAM TRIBUNAL. INCIDENTALLY SIMILAR VIEW H AS ALSO BEEN TAKEN BY HONBLE HYDERABAD ITAT IN A RECENT CASE IN BAJAJ CONSUMER C ARE LTD VS.- ACIT(2011)[ITA NO. 365/HYD/09]. IN THE LIGHT OF THE FACTS OF THE P RESENT CASE AND RESPECTFULLY FOLLOWING THE ABOVE MENTIONED DECISIONS, WE REJECT THIS CONTE NTION OF LD DR ON MERIT AS WELL. 11. NOW WE WILL DEAL WITH THE ADDITIONAL GROUND AGA INST EXCLUSION OF SALES TAX INCENTIVE AS CAPITAL RECEIPT IN COMPUTING BOOK PROF IT U/S 115JB OF THE ACT. 18 11.1 AT THE OUTSET, ON ADDITIONAL GROUND, LD COUNSE L FOR THE ASSESSEE POINTED OUT THAT REVENUE IN ITS APPLICATION DATED 09-12-2010 FOR ADM ISSION OF ADDITIONAL GROUND HAVE SOUGHT THE SAME TO BE ADMITTED INTER-ALIA ON THE ST AND THAT THE SAID GROUND COULD NOT BE TAKEN AT THE TIME OF FILING OF ORIGINAL APPEAL. HE THUS, POINTED OUT THAT THE REVENUE NEED TO ESTABLISH AS TO WHY THE SAID GROUND COULD NOT BE TAKEN AT THE TIME OF FILING OF ORIGINAL APPEAL SINCE OTHERWISE IT TANTAMOUNT TO FILING OF F RESH APPEAL. ON EXAMINATION, WE FIND THAT THE ADDITIONAL GROUND FILED BY THE DEPARTMENT IS PURELY ON LEGAL ISSUE AND DOES NOT REQUIRE INVESTIGATION OF NEW FACTS. HENCE, THE OBJE CTION RAISED BY LD COUNSEL FOR THE ASSESSEE IS THUS REJECTED AND THE ADDITIONAL GROUND IS ADMITTED FOR THE SAKE OF JUSTICE. 12. ON MERIT, LD D/R IN ITS WRITTEN SUBMISSION FILE D ON 21-06-2011 HAS SUBMITTED AS FOLLOWS : BRIEF FACTS WITH RESPECT TO THE SUBJECT GROUND OF APPEAL ARE SUBMITTED AS BELOW: IN THE ACCOUNTS PREPARED BY THE ASSESSEE IN ACCORDA NCE WITH THE PROVISIONS OF PART II & PART III OF SCHEDULE VI OF THE COMPANIES ACT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL M EETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF TH E COMPANIES ACT, THE SALES TAX SUBSIDY HAS BEEN CREDITED BY THE ASSE SSEE TO THE PROFIT & LOSS ACCOUNT. THE SALES TAX SUBSIDY HAS BEEN INCLUDED IN THE TOTA L TURNOVER OF THE ASSESSEE. THUS THE SALES TAX SUBSIDY IS INCLUDED IN THE BOOK PROFITS AS ARE REFLECTED IN THE ACCOUNTS MAINTAINED IN ACCORDA NCE WITH THE ABOVE MENTIONED PROVISIONS OF COMPANIES ACT. THAT WHILE FILING THE RETURN OF INCOME, THE ASSESSE E HAS RECOMPUTED ITS BOOK PROFITS BY REDUCING THE AMOUNT OF SALES TA X SUBSIDY/ INCENTIVE. 19 IN THE RETURN OF INCOME WHILE COMPUTING THE BOOK PR OFITS AND TAX PAYABLE UNDER THE PROVISIONS OF SECTION 115 JB OF T HE ACT, THE ASSESSEE HAS INCREASED THE BOOK PROFITS BY VARIOUS AMOUNTS IN ACCORDANCE WITH THE PROVISIONS OF THE CLAUSE (A) TO (F) OF EXPLANATION TO SECTION 115JB(2). THAT, IN COMPUTING THE BOOK PROFITS, THE ASSESSEE C OMPANY HAD SIMULTANEOUSLY REDUCED THE BOOK PROFITS BY AMOUNTS FALLING UNDER CLAUSE (I) TO (VII) OF EXPLANATION TO SECTION 115JB (2) OF THE ACT. THAT THE ASSESSEE HAS FURTHER REDUCED THE BOOK PROF ITS BY THE AMOUNT OF SALES TAX INCENTIVE/ SUBSIDY WITHOUT MENTIONING ANY ENABLING PROVISIONS OF THE ACT IN THIS REGARD. THAT IN THE RETURN OF INCOME THE ASSESSEE HAS MEREL Y MENTIONED THAT RELYING UPON THE DECISION OF DIVISION BENCH OF CALC UTTA HIGH COURT IN THE CASE OF CIT VS BALRAMPUR CHINI MILLS AND MUM BAI SPECIAL BENCH IN THE CASE OF DCIT VS RELIANCE INDUSTRIES LT D THE COMPANY HAS CLAIMED A DEDUCTION OF CAPITAL SUBSIDY ON ACCOU NT OF AVAILMENT OF SALES TAX INCENTIVE FROM RAJASTHAN GOVERNMENT. THAT NONE OF THE DECISIONS MENTIONED BY THE ASSESSE E IN THE RETURN OF INCOME RELATES TO THE COMPUTATION OF BOOK PROFITS U /S 115JB OF THE ACT. THAT THE PROVISIONS OF THE SECTION 115JB OF THE ACT ARE MANDATORY IN NATURE AND BINDING. THE SAID PROVISIONS HAVE COME U P FOR CONSIDERATION BEFORE VARIOUS COURTS INCLUDING THE H ONBLE APEX COURT WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT FROM TH E BOOK PROFITS AS DEFINED UNDER SUB SECTION (1) & (2) OF SECTION 115 JB, ANY ADJUSTMENT PRESCRIBED UNDER EXPLANATION 1 TO THE SAID SUB SECT ION CAN ONLY BE MADE. ANY OTHER ADJUSTMENT NOT PRESCRIBED UNDER THE SAID EXPLANATION IS NOT PERMISSIBLE IN LAW. THAT THE REDUCTION OF BOOK PROFITS BY THE ASSESSEE BY THE AMOUNT OF SALES TAX SUBSIDY IS NOT IN ACCORDANCE WITH ANY OF THE CLAUSES OF EXPLANATION 1 TO SECTION 115JB. 20 THAT THE SPECIAL BENCH OF THE HONBLE TRIBUNAL IN T HE CASE OF RAIN COMMODITIES LTD VS DCIT (HYD SPECIAL BENCH) (2010) 41 DTR (HYD)(SB) 449 HAS HELD (HEAD NOTES: WHATEVER ACCOUNTING POLICY ADOPTED FOR THE PURPOSE OF PREPA RING THE P&L ACCOUNT LAID BEFORE THE COMPANY SHOULD BE A DOPTED FOR COMPUTING BOOK PROFITS U/S 115JB OF THE ACT- CAPITA L GAINS ON SALE OF SHARES WERE INCLUDED IN COMPUTING THE PROFITS PRESE NTED BEFORE THE SHAREHOLDERS AND THE SAME SHOULD BE ALSO BE INCLUDE D IN COMPUTING BOOK PROFITS U/S 115JB- IF LONG TERM CAPITAL GAINS IS PART OF PROFITS INCLUDED IN THE P&L ACCOUNT PREPARED AS PER PARTS I I & III OF SCHEDULE VI OF THE COMPANIES ACT, IT CANNOT BE EXCL UDED FROM NET PROFIT FOR THE PURPOSE OF COMPUTING BOOK PROFIT- ME THOD OF COMPUTATION OF BOOK PROFIT PROVIDED IN EXPLANATION TO SECTION 115JB SHOULD BE FOLLOWED WHILE COMPUTING THE BOOK PROFIT AND THE NORMAL PROVISIONS OF COMPUTATION OF PROFIT UNDER ANY HEAD OF THE ACT WILL NOT BE APPLICABLE- CAPITAL GAINS IN QUESTION IS EXEMPT U/S 47(IV) BUT THE SAME IS NOT COVERED BY ANY OF THE CLAUSES (I) TO (V II) OF EXPL TO SECTION 115JB. MERELY BECAUSE THE LONG TERM CAPITAL GAINS I S EXEMPT U/S 47(IV) UNDER THE NORMAL PROVISIONS OF THE ACT, IT I S NOT CORRECT TO SAY THAT IT IS ALSO TO BE REDUCED FROM THE NET PROFIT F OR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB WHEN THE EXPLANATION TO SECTION 115JB DOES NOT PROVIDE FOR ANY DEDUCTION IN TERMS OF SECTION 47(IV) THUS IT COULD BE SEEN THAT THE DECISION OF THE HON BLE SPECIAL BENCH SQUARELY APPLIES TO THE PRESENT CASE. WHEN NONE OF THE CLAUSES OF EXPLANATION 1 TO SECTION 115JB PROVIDES FOR EXCLUSI ON OF THE RECEIPTS TREATED AS CAPITAL RECEIPTS FOR THE PURPOSE OF COMP UTING INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, THE BOOK PROFITS CANNOT BE REDUCED FROM THE AMOUNT OF SUCH RECEIPTS EVEN IF THE RECEIP TS IN QUESTION ARE ULTIMATELY HELD TO BE THE CAPITAL RECEIPTS. FURTHER RELIANCE IS PLACED UPON THE DECISION OF THE DELHI BENCH OF THE HONBLE TRIBUNAL IN THE CASE OF GROWTH AVENUE SECUR ITIES VS DCIT (ITAT DELHI) (2010) 128 TTJ (DEL) 426- WHEREIN THE HONBLE TRIBUNAL HELD THAT MERELY BECAUSE THE LONG TERM CAP ITAL GAIN IS NOT LIABLE TO BE TAXED UNDER THE NORMAL PROVISIONS OF T HE ACT FOR THE REASON THAT THE ASSESSEE HAS MADE INVESTMENTS IN SP ECIFIED SCHEMES AS CONTEMPLATED UNDER SECTION 54EC, IT IS NOT CORRECT TO SAY THAT IT IS ALSO 21 TO BE REDUCED FROM THE NET PROFIT FOR THE PURPOSE O F COMPUTING BOOK PROFIT UNDER SECTION 115JB. IT IS ALSO SUBMITTED THAT THE LD CIT(A) HAS NOT GIV EN ANY FINDINGS ON THIS ISSUE AND ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE BY SIMPLY HOLDING THAT THE SAID RECEIPT IS A CAPITAL RECEIPT AND NO FURTHER FINDINGS WITH REGARD TO THE ADJUSTMENT OF BOOK PROFITS ON AC COUNT OF SALES TAX SUBSIDY MADE BY THE ASSESSEE AND DISALLOWED BY THE ASSESSING OFFICER HAVE BEEN GIVEN. SINCE THE PRESENT ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE SPECIAL BENCH IN THE CASE OF RAIN COMMODITI ES (SUPRA), IT IS THEREFORE REQUESTED THAT THE ASSESSMENT ORDER MAY K INDLY BE RESTORED BY ALLOWING THE SUBJECT GROUND OF APPEAL. 12.1 ON THE OTHER HAND, THE LD COUNSEL FOR THE ASSE SSEE FILED A CHART CONTAINING THE KEY SUBMISSIONS AND THE PRECEDENCE IN ITS OWN CASE. THE SAME IS ALSO REPRODUCED HEREIN BELOW: I. DEPARTMENT HAS FILED ADDITIONAL GROUND FOR EXCLU SION OF SALES TAX INCENTIVE IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. IN WRITTEN SUBMISSION FILED BY LD DR, DEPARTMENT HA S RELIED UPON DECISIONS IN THE CASE OF RAIN COMMODITIES LTD. VS.- DCIT (20 10) 41 DTR 449 (HYD.)(SB) & GROWTH AVENUE SECURITIES VS.- DCIT (2 010) 128 TTJ 426 (DEL). II. ASSESSEES SUBMISSION A. PRECEDENTS IN FAVOUR OF ASSESSEE: ABOVE ADDITIONAL GROUND IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE BY THE DECISION OF HONBLE JAIPUR TRIBUNAL IN ASSESSEES O WN CASE IN A.Y. 2003-04 VIDE ORDER DATED 23-12-2009 IN ITA NO. 942/JP/2008. B. NON-APPLICABILITY OF DECISIONS RELIED BY THE DEPART MENT SL NO RAIN COMMODITIES (SUPRA) ASSESSEES CASE 1 BRIEF FACTS 22 SL NO RAIN COMMODITIES (SUPRA) ASSESSEES CASE ABOVE DECISION IS IN RELATION TO TAXABILITY OF CAPITAL GAINS IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT AND NOT TAXABILITY OF CAPITAL RECEIPT, WHICH DOES NOT HAVE ANY ELEMENT OF INCOME EMBEDDED IN IT. ASSESSEES CASE IS ON INCENTIVE GRANTED FOR EXPANSION OF ITS UNIT, WHICH IS PURE & SIMPLICITOR, CAPITAL RECEIPT NOT CHARGEABLE TO TAX & WHICH FACTUALLY DOES NOT HAVE ANY ELEMENT OF INCOME OR PROFIT EMBEDDED IN IT. SUCH RECEIPTS DO NOT HAVE ANY INCOME OR PROFIT ELEMENT, SINCE GRANTED TO ENCOURAGE INDUSTRIAL GROWTH OF INDUSTRIALLY NON- DEVELOPED AREA. 2 CAPITAL RECEIPT & CAPITAL GAINS ARE NOT IDENTICAL CAPITAL GAIN IS CONSIDERED AS INCOME U/S 2(24)(VI) AND HENCE CHARGEABLE TO TAX. PURE CAPITAL RECEIPTS ARE NOT INCOME WITHIN THE MEANING OF SECTION 2(24) OF THE ACT [PADMARAJE R KADAMBANDE VS CIT (1992) 195 ITR 877 (SC)] & HENCE ARE NOT AT ALL CHARGEABLE UNDER THE I. T. ACT. A RECEIPT WHICH IS NEITHER PROFIT NOR INCOME CANNOT BE PART OF PROFIT AS PER P&L A/C PREPARED IN TERMS OF PART II & PART III OF SCHEDULE VI TO COMPANIES ACT. 3 CLAIM BY THE ASSESSEE THE ASSESSEE CLAIMED DEDUCTION OF CAPITAL GAIN FROM BOOK PROFIT ON THE GROUND THAT IT WAS EXEMPTED INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AND NOT ON THE GROUND THAT IT WAS NOT INCLUDIBLE IN THE P&L A/C PREPARED UNDER PART II & III OF SCHEDULE VI TO THE COMPANIES ACT. THE ASSESSEE HAS CLAIMED EXCLUSION OF INCENTIVE FOR INDUSTRIALIZATION ON THE GROUND THAT IT IS A CAPITAL RECEIPT WHICH DOES NOT HAVE ANY ELEMENT OF INCOME OR PROFIT EMBEDDED THEREIN AND HENCE IT IS NEITHER CHARGEABLE TO TAX UNDER THE INCOME TAX ACT NOR INCLUDIBLE IN P&L A/C PREPARED UNDER PART & PART III OF SCHEDULE VI TO THE COMPANIES ACT. 4 CHARACTER OF EXEMPTION GRANTED TO INCOME/RECEIPT SOUGHT TO BE EXCLUDED HONBLE SPECIAL BENCH IN PARA 29 OF THE ORDER WHILE ACKNOWLEDGING THAT THE CHARACTER IS A RELEVANT CONSIDERATION HAVE GIVEN A FINDING THAT THE CAPITAL GAIN IN IN ASSESSEES CASE, THE CLAIM IS FOR EXCLUSION OF CAPITAL RECEIPT WHICH IS NOT CHARGEABLE TO TAX AT ALL AS HELD BY THE APEX COURT, BY VARIOUS HIGH COURTS AND BY THE HONBLE SPECIAL BENCH OF TRIBUNAL IN THE CASES RELIED HERE-IN ABOVE. 23 SL NO RAIN COMMODITIES (SUPRA) ASSESSEES CASE THIS CASE WHICH WERE EXEMPT U/S 47/ SEC 50 BY NATURE DID NOT REPRESENT TOTAL EXEMPTION BUT IT WAS MERELY IN THE NATURE OF DEFERMENT OF TAX. 5 MAT LEVIED ON COMPANIES AVAILING TAX INCENTIVES A ND TAX CONCESSIONS UNDER THE IT ACT AND INCENTIVE GRANTED BY STATE GOVERNMEN T FOR EXPANSION OF THE NEW UNIT IS NEITHER TAX INCENTIVE NOR TAX CONCESSIO N UNDER I. T. ACT RAIN COMMODITIES (SUPRA) DEALT WITH PROFITS IN THE FORM OF CAPITAL GAIN EXEMPT U/S 47(IV). THE SAID PROVISION IS IN THE NATURE OF TAX EXEMPTION OR CONCESSION AVAILABLE UNDER THE INCOME TAX ACT. CAPITAL INCENTIVE IS NEITHER IN THE NATURE OF TAX INCENTIVE NOR TAX CONCESSION AVAILABLE UNDER THE ACT. IT IS AN INCENTIVE FOR INDUSTRIALIZATION AND NOT TAX INCENTIVE OR CONCESSION UNDER INCOME TAX ACT. THE DECISION OF HONBLE TRIBUNAL IN THE CASE OF GRO WTH AVENUE (SUPRA), WHICH IS ALSO RELIED UPON BY THE REVENUE, WAS RENDE RED PRIOR TO THE DECISION OF SPECIAL BENCH AND HAS BEEN DULY CONSIDE RED BY THE SPECIAL BENCH. THE SAID CASE IS ALSO CLEARLY DISTINGUISHABL E FROM THE CASE OF THE ASSESSEE ON THE SAME LINES AND PRINCIPLES AS ABOVE AND HENCE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. THEREFORE, THE DECISIONS OF THE RAIN COMMODITIES & GROWTH AVENUE (SUPRA) AS RELIED UPON BY DEPARTMENT ARE CLEARLY DI STINGUISHABLE ON FACTS AND HENCE CANNOT BE APPLIED IN THE PRESENT CASE. ON THE CONTRARY, THE IMPUGNED MATTER IS SQUARELY COVERED BY THE FACTS OF THE CASE IN DECISION OF THIS HONBLE TRIBUNAL IN ITA NO. 942/JP/08 IN ASSES SEES OWN CASE FOR A.Y. 2003-04 AND HENCE THE DECISION IN THE SAID CASE, WH ICH IS IN FAVOUR OF THE ASSESSEE, FULLY APPLIES. C. EXCLUSION OF CAPITAL RECEIPT CREDITED TO P&L ACCOUN T IS IN ACCORDANCE WITH PART II & PART III OF SCHEDULE VI TO THE COMPA NIES ACT, 1956 HONBLE APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS.- CIT (2002) 255 ITR 273 (SC) HAVE HELD THAT THE AO HAS NO POWER TO REWORK THE B OOK PROFIT IF THE PROFITS ARE COMPUTED IN ACCORDANCE WITH PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. FURTHER, TH E HONBLE APEX COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD -VS.- C IT (2011) 330 ITR 363 (SC) HAVE ALSO HELD THAT THE OBJECT OF MAT PROVISIONS I S TO BRING OUT THE TRUE WORKING RESULT OF THE COMPANIES. THE THRUST IS TO FIND OUT THE REAL WORKING RESULTS OF THE COMPANY. 24 HONBLE SPECIAL BENCH IN THE CASE OF RAIN COMMODITI ES (SUPRA) IN PARA 17 (LAST SUB-PARA) & PARA 18, AFTER CONSIDERING THE DE CISION OF SUPREME COURT IN APOLLO TYRES LTD (SUPRA) HAVE HELD THAT IF PROFI T & LOSS ACCOUNT IS NOT IN ACCORDANCE WITH PART II & PART III OF SCHEDULE VI T O THE COMPANIES ACT, THE A.O. HAS THE POWER TO ALTER THE NET PROFIT. REFERENCE MAY BE MADE TO RELEVANT CLAUSES OF PART I I & III OF SCHEDULE VI TO THE COMPANIES ACT PROVIDES THAT PARA 2 THE PROFIT & LOSS ACCOUNT (A) SHALL BE SO MADE OUT AS CLEARLY TO DISCLOSE THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE ACCOUN T; . . . . . . . . . . . . IN THE PRESENT CASE, CAPITAL INCENTIVE, WHICH IS A PURE CAPITAL RECEIPT, NOT HAVING ANY ELEMENT OF INCOME OR PROFIT EMBEDDED THEREIN HAS BEEN CREDITED TO P&L ACCOUNT. ABOVE INCENTIVE HAS BEEN G RANTED TO THE ASSESSEE FOR EXPANSION OF ITS UNIT. THE OVERALL INCENTIVE HA S BEEN QUANTIFIED ON THE BASIS OF FIXED CAPITAL INVESTMENT MADE BY THE ASSES SEE AS CERTIFIED IN THE ELIGIBILITY CERTIFICATE. FROM PERUSAL OF THE SAID C ERTIFICATE [PG 23 OF PB] IT COULD BE NOTED THAT THE ASSESSEE IS ENTITLED TO INC ENTIVE OF RS. 157.28 CRS TO BE GRANTED OVER A PERIOD OF NEXT 11 YEARS, FOR CAPI TAL INVESTMENT OF SAID AMOUNT MADE BY IT. ABOVE RECEIPT CAN NEITHER BE STATED TO BE PERTAININ G TO A PARTICULAR YEAR NOR CAN BE APPORTIONED OVER A PERIOD OF 11 YEARS. IF TH E SAID RECEIPT IS CREDITED TO P&L ACCOUNT ON THE BASIS OF SALES TAX EXEMPTION AVAILED DURING THE YEAR, THE SAME DOES NOT REFLECT THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE ACCOUNT AS PER THE REQUIR EMENT OF PART-II OF SCHEDULE VI. SINCE IN THE PRESENT CASE, THE SAME HA S BEEN CREDITED TO P&L A/C, HENCE IT NEEDS TO BE EXCLUDED WHILE COMPUTING BOOK PROFIT U/S 115JB TO FULFILL THE REQUIREMENT OF PART-II OF SCHEDULE-V I. THE ABOVE EXCLUSION OR ADJUSTMENT IN COMPUTING BOOK PROFIT IS PERMISSIBLE IN TERMS OF DECISION OF HONBLE APEX COURT IN THE CASE OF APOLLO TYRES (SUP RA) AND AS PER FOLLOWING DECISIONS RENDERED BY VARIOUS TRIBUNALS C ONSIDERING & FOLLOWING THE DECISION OF APEX COURT (SUPRA): DCIT VS.- BOMBAY DIAMOND CO. LTD. (2010) 33 DTR 59 (MUM) FACTS - THE ASSESSEE HAD SOLD RIGHTS OF PREMISES OWNED BY IT AND DIRECTLY CREDITED THE SAME TO CAPITAL RESERVE WITHOUT ROUTIN G THE SAME TO P&L A/C AND DID NOT CONSIDER THE SAME FOR COMPUTING BOOK PR OFIT U/S 115JB. THE A.O. ADDED BACK THE SAME ON THE CONTENTION THAT THE ACCOUNTS ARE NOT IN 25 ACCORDANCE WITH PART II & PART III OF SCHEDULE VI A S THE SAID RECEIPT WAS IN THE NATURE OF INCOME FROM INVESTMENT AND WAS REQUIR ED TO BE CREDITED TO P&L A/C TO SHOW THE CORRECT RESULT OF THE COMPANY. DECISION AFTER CONSIDERING THE DECISION OF APOLLO TYRES ( SUPRA), IT WAS HELD THAT IF ASSESSEE HAS EARNED PROFIT ON SALE OF RIGHTS IN AN IMMOVABLE PROPERTY AND THE SAME HAS NOT BEEN ROUTED THROUGH P &L ACCOUNT AND HAS BEEN DIRECTLY CREDITED TO CAPITAL RESERVE, THEN THE ACCOUNTS ARE NOT PREPARED IN ACCORDANCE WITH PART II OF SCHEDULE VI AND A.O. HAS POWER TO GO BEYOND THE BOOK PROFIT AS PER AUDITED ACCOUNTS. APPLICABILITY IN PRESENT CASE - ABOVE DECISION IS SQUARELY APPLICABLE AS IT IS EXACTLY THE REVERSE SITUATION. THE CAPITAL INCENTIV E CREDITED TO P&L ACCOUNT IS NOT IN ACCORDANCE WITH PART II OF SCHEDULE VI AS THE SAME DOES NOT ARISE OUT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE ACCOUNT AND HENCE IN ORDER TO COMPUTE THE CORRECT B OOK PROFIT U/S 115JB, THE SAME NEEDS TO BE EXCLUDED AND WHILE DOING SO TH E ASSESSEE IS JUSTIFIED TO GO BEYOND THE BOOK PROFIT AS PER AUDITED ACCOUNTS A ND MAKE NECESSARY ADJUSTMENT FOR THE SAME. IN DOING SO, IT DOES NOT C ONTRAVENE THE PRINCIPLES LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF APOLLO TYRES (SUPRA) . SYNDICATE BANK VS.- ACIT (2006) 7 SOT 51 (BANG) FACTS - THE ASSESSEE ACCOUNTED FOR INTEREST ON ZERO COUP ON BONDS IN ITS P&L A/C. IN COMPUTING BOOK PROFIT U/S 115JA, THE SAID I NCOME WAS EXCLUDED ON THE CONTENTION THAT THE SAME REPRESENTS NOTIONAL IN COME AS NO INTEREST HAD ACCRUED DURING THE YEAR. THE A.O. ADDED BACK THE SA ME ON THE CONTENTION THAT NO SUCH ADJUSTMENT IS PERMISSIBLE IN COMPUTING BOOK PROFIT AS THE ACCOUNTS ARE IN ACCORDENCE WITH PART II & PART III OF SCHEDULE VI. DECISION HELD THAT WHERE THE ASSESSEE HAS CREDITED ENTIRE INCOME BY WAY OF INTEREST ON ZERO COUPON BOND TO P&L A/C WHICH HA S NOT ACCRUED DURING THE YEAR, THE SAME CANNOT BE CONSIDERED AS TO DISC LOSE THE RESULT OF WORKING OF THE COMPANY DURING THE FINANCIAL YEAR S INCE THE SAID INTEREST INCOME IS A NOTIONAL ENTRY AND IT HAS NEVER ACCRUED DURING THE YEAR. HENCE, SUCH NOTIONAL INCOME BY WAY OF INTEREST ON ZERO COU PON BOND HAS TO BE EXCLUDED WHILE COMPUTING BOOK PROFIT U/S 115JA OF T HE ACT. IT NEEDS TO BE NOTED THAT THE HONBLE TRIBUNAL HAS DULY RELIED UPO N THE DECISION OF APEX COURT IN THE CASE OF APOLLO TYRES (SUPRA) AND PERMITTED SUCH REDUCTION/ ADJUSTMENT EVEN THOUGH THE INCOME WAS CREDITED TO P ROFIT & LOSS ACCOUNT. APPLICABILITY IN PRESENT CASE IN THE PRESENT CASE, CAPITAL INCENTIVE THOUGH CREDITED TO P&L A/C DOES NOT REPRESENT PROFIT/INCOM E PERTAINING TO A PARTICULAR YEAR. ITS CREDIT TO P&L ACCOUNT DOES NOT REFLECT THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE ACCOUNT AS PER THE REQUIREMENT OF PART-II OF SCHEDULE VI. HENCE, I T NEEDS TO BE EXCLUDED 26 WHILE COMPUTING BOOK PROFIT U/S 115JB TO FULFILL TH E REQUIREMENT OF PART-II OF SCHEDULE-VI. THE ABOVE EXCLUSION OR ADJUSTMENT I N COMPUTING BOOK PROFIT IS PERMISSIBLE IN TERMS OF DECISION OF HONB LE APEX COURT IN THE CASE OF APOLLO TYRES (SUPRA). D. LEGISLATIVE INTENTION OF LEVY OF MAT THE INTENTION OF LEGISLATURE IN ENACTING LEGAL PROV ISIONS ALWAYS PLAYS A PIVOTAL ROLE IN ANALYSING THE SCOPE OF SAID PROVISI ON. ON PERUSAL OF THE LEGISLATIVE INTENTION OF SEC. 115J [CBDT CIRCULAR N O. 495 DATED 22-09- 1987 {168 ITR (ST) 87 AT PG. 110}], IT CAN BE GATHE RED THAT THE INTENTION OF LEGISLATURE WAS TO LEVY TAX ON COMPANIES AVAILING T AX INCENTIVES AND TAX CONCESSIONS UNDER THE IT ACT AND PAYS LESS TAX ALTH OUGH THEY HAVE HUGE PROFITS IN BOOKS. INCENTIVE FOR EXPANSION OF INDUST RIAL UNIT BEING CAPITAL RECEIPT IN NATURE, IS NOT IN THE NATURE OF TAX CONC ESSIONS OR TAX INCENTIVES UNDER THE IT ACT. IT IS AN INCENTIVE FOR INDUSTRIAL IZATION. THEREFORE, LEVYING BOOK PROFIT ON SAME WILL BE AGAINST THE LEGISLATIVE INTENTION. NOTABLY, IN THE CASE OF GROWTH AVENUE (SUPRA) AS RELIED UPON BY LD. DR, THE ISSUE WAS WITH REGARD TO EXEMPTION U/S 54EC OF THE ACT. IT NEEDS TO BE NOTED THAT ABOVE EXEMPTION IS A SPECIFIC TAX INCENT IVE OR TAX CONCESSION GRANTED BY THE I. T. ACT FOR INVESTMENT IN SPECIFIE D ASSETS, FOR EXEMPTION OF THE CAPITAL GAINS THAT ARE CHARGEABLE TO TAX OTHERW ISE. HENCE, SUCH INCOME IS HELD TO BE SUBJECT TO MAT U/S 115JB. SIMILARLY, IN THE CASE OF RAIN COMMODITIES (SUPRA) THE ISSUE WAS WITH REGARD TO CHARGEABILITY OF CAPITAL GAIN ON ASSETS T RANSFERRED TO SUBSIDIARY COMPANY AND CORRESPONDING EXEMPTION U/S 47(IV). SIN CE IN THE PRESENT CASE, THE ISSUE IS WITH REGARD TO TAXABILITY OF CAPITAL R ECEIPT AND NOT TAXABILITY OF TAX EXEMPT INCOME OR PROFITS (BECAUSE OF VARIOUS TA X INCENTIVES AVAILABLE IN THE I. T. ACT), THE ABOVE DECISIONS ARE NOT APPLICA BLE IN THE PRESENT CASE. 12.2 THE LD. D/R IN HIS SUBMISSION FILED ON 21-06-2 011 HAS PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH IN THE CASE OF RAIN COMMO DITIES LTD. VS- DCIT 41 DTR 449 (HYD.)(SB) AND GROWTH AVENUE SECURITIES (P) LTD. -V S- DCIT (2010) 128 TTJ 426 (DEL). HE ARGUED THAT WHEN NONE OF THE CLAUSES OF EXPLANAT ION TO SECTION 115JB PROVIDES FOR EXCLUSION OF CAPITAL RECEIPTS, THEN THE BOOK PROFIT CANNOT BE REDUCED BY THE AMOUNT OF SUCH RECEIPTS, EVEN IF THE RECEIPTS IN QUESTION ARE ULTIMATELY HELD TO BE THE CAPITAL RECEIPTS. 27 12.3 THE LD. COUNSEL FOR THE ASSESSEE THEREAFTER SU BMITTED THAT THE ABOVE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF JAIPUR BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 VIDE PARA 5 .26 OF THE ORDER DATED 23-12-2009 IN ITA NO. 942/JP/2008. HE FURTHER SUBMITTED THAT AGAI NST THE ABOVE ORDER OF TRIBUNAL, REVENUE HAD FILED APPEAL BEFORE THE HONBLE RAJASTH AN HIGH COURT. ONE OF THE 12 GROUNDS TAKEN BY REVENUE IN THE SAID APPEAL [GROUND E] WAS SPECIFICALLY AGAINST IMPUGNED RELIEF GRANTED IN COMPUTATION OF BOOK PROF IT (MAT) U/S 115JB OF THE INCOME TAX ACT. HOWEVER, HONBLE RAJASTHAN HIGH COURT VIDE ORDER DATED 01-10-2010 ADMITTED ONLY ONE GROUND AS TO WHETHER THE IMPUGNED SUBSIDY WAS A CAPITAL RECEIPT OR A REVENUE RECEIPT AND DID NOT ADMIT THE GROUND ON EXCLUSION O F SALES TAX INCENTIVE IN COMPUTING BOOK PROFIT U/S 115JB. THAT BEING THE CASE, IT WAS SUBMITTED BY THE LD COUNSEL FOR THE ASSESSEE THAT THE ABOVE DECISION OF JAIPUR BENCH OF THE TRIBUNAL HAS ATTAINED FINALITY, SINCE THE VERY GROUND ON BOOK PROFIT COMPUTATION HA S NOT BEEN ALLOWED TO BE AGITATED BY HONBLE RAJASTHAN HIGH COURT. INCIDENTALLY THE ORDE R OF JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE AS STATED ABOVE HAS BEEN RENDER ED IN OCTOBER 2010, MUCH AFTER THE DECISIONS RELIED UPON BY THE LD. DR WERE RENDERED B Y TRIBUNAL. IN VIEW OF THE FAVOURABLE DECISIONS IN ASSESSEES OWN CASE IN AY 2003-04, BEI NG THE PRECEDENT DECISION OF JURISDICTIONAL TRIBUNAL AND THE LATEST DECISION OF THE JURISDICTIONAL HIGH COURT, IT WAS SUBMITTED THAT THE ADDITIONAL GROUND FILED BY THE D EPARTMENT NEEDS TO BE OUTRIGHT DISMISSED. 12.4 ON MERIT, THE LD COUNSEL SUBMITTED THAT THE DE CISIONS RELIED UPON BY THE LD D/R ARE CLEARLY DISTINGUISHABLE AS THE FACTS IN THE SAI D CASES ARE DIFFERENT FROM THE FACTS IN THE PRESENT CASE. HE ALSO SUBMITTED THAT IF P&L ACCOUNT S ARE NOT IN ACCORDANCE WITH 28 SCHEDULE VI PARTS II & III OF THE COMPANIES ACT, IT IS PERMISSIBLE TO MAKE ADJUSTMENTS SO AS TO GET PROFIT AS PER P&L ACCOUNT IN ACCORDANCE W ITH SCHEDULE VI PARTS II & III, IN TERMS OF THE DECISIONS OF SPECIAL BENCH & MUMBAI & BANGALORE TRIBUNAL RELIED UPON BY HIM, WHICH HAVE SO HELD AFTER DULY CONSIDERING & EX PLAINING THE DECISION OF THE APEX COURT IN THE CASE OF APOLLO TYRES (SUPRA). HIS ELAB ORATE SUBMISSIONS ON BOTH THIS ACCOUNTS ARE APTLY SUMMARIZED IN HIS KEY SUBMISSION S, WHICH HAVE BEEN REPRODUCED IN PARA 12.1 HERE IN ABOVE AND HENCE NOT REPEATED HERE AGAIN. LD. COUNSEL ALSO COUNTERED EACH AND EVERY OTHER POINT RAISED BY LD. D/R, WHICH HAVE BEEN DEALT WITH HERE IN AFTER. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THEM CAREFULLY. WE HAVE ALSO PERUSED THE ORDERS OF AUTHORITIES BELOW AS WELL AS OTHER MATERIAL ON WHICH OUR ATTENTION HAS BEEN DRAWN. WE HAVE TAKEN INTO CONSIDERATION TH E RATIO DECIDENDI OF ALL THE DECISIONS RELIED UPON BY THE RIVAL PARTIES. 13.1 AT THE OUTSET, THE ISSUE IN HAND IS COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE FOR A.Y. 2003-04 VIDE ORDER DATED 23-12-2009 IN ITA NO. 942/JP/08. THE ABOVE DECISION OF TRIBUNAL HAS BEEN APPEALED BEFORE THE HONBLE JU RISDICTIONAL RAJASTHAN HIGH COURT AND HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DA TED 01-10-2010 HAS ADMITTED ONLY ONE GROUND WHICH IS REPRODUCED BELOW: WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE SALE S TAX SUBSIDY RECEIVED BY THE ASSESSEE OF RS. 18,48,85,506 IN THE FORM OF SALES TAX EXEMPTION WAS A CAPITAL RECEIPT & NOT A REVENUE RECEIPT, IGNORING THE BASIC PURPOSE FOR WHICH THE SAME WAS 29 GIVEN WHICH ITSELF PROVIDES THAT THE SUBSIDY WAS GIVEN TO THE ASSESSEE TO ENHANCE THE PRODUCTION, EMPLOYMENT & SALES IN THE STATE OF RAJASTHAN, WHICH ARE ALL POST OPERATIONAL ACTIVITIES FROM THE ABOVE, IT COULD BE CLEARLY SEEN THAT HONB LE HIGH COURT ADMITTED ONLY THE GROUND AS TO WHETHER THE IMPUGNED SUBSIDY WAS A CAP ITAL RECEIPT OR A REVENUE RECEIPT. HONBLE HIGH COURT HAS NOT ADMITTED THE GROUND OF T HE REVENUE AGAINST RELIEF GRANTED BY TRIBUNAL UNDER SECTION 115JB OF THE ACT ON ABOVE CA PITAL RECEIPT. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT AND THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2003-04 WE SEE NO REASONS TO TAKE ANY O THER VIEW ON THE MATTER DIFFERENT FROM THE CONCLUSIONS ARRIVED AT BY THIS BENCH IN FA VOUR OF THE ASSESSEE, AS FAR AS EXCLUSION FROM BOOK PROFIT UNDER SECTION 115JB IS C ONCERNED, THAT NOW STANDS AFFIRMED BY THE HONBLE RAJASTHAN HIGH COURT AND WE ARE IN R ESPECTFUL AGREEMENT WITH THE SAME. 13.2 OUR ABOVE VIEW ALSO FINDS SUPPORT FROM THE DEC ISION OF HONBLE APEX COURT IN THE CASE OF PADMARAJE R. KADAMBANDE VS. CIT (1992) 195 ITR 877 (SC), WHEREIN IT HAS BEEN HELD BY THE APEX COURT THAT CAPITAL RECEIPTS A RE NOT INCOME WITHIN THE DEFINITION OF SEC 2(24) OF THE ACT AND HENCE ARE NOT AT ALL CHARG EABLE UNDER THE I.T. ACT. A RECEIPT WHICH IS NEITHER PROFIT NOR INCOME AND WHICH DO ES NOT HAVE ANY ELEMENT THERE-OF EMBEDDED THERE IN, CANNOT BE PART OF PROFIT AS PE R PROFIT & LOSS ACCOUNT PREPARED IN TERMS OF PART II OF SCHEDULE VI TO COMPANIES ACT. 13.3 AS FAR AS THE DECISIONS RELIED UPON BY THE LD D/R ARE CONCERNED, WE ARE UNABLE TO FOLLOW THE SAME IN THE PRESENT CASE, AS THE FACTS O F THE SAID DECISIONS ARE CLEARLY DIFFERENT FROM THE FACTS IN THE PRESENT CASE. IT IS A SETTLED PRINCIPLE OF LAW AS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF PADMASUNDRA RAO ( DECD.) VS. STATE OF TAMIL NADU 30 (2002) 255 ITR 147 (SC) THAT COURTS SHOULD NOT PLAC E RELIANCE ON THE DECISIONS WITHOUT DISCUSSING AS TO HOW THE FACTUAL SITUATION FITS IN WITH THE FACT SITUATION OF THE DECISION ON WHICH RELIANCE IS PLACED. 13.4 FROM PERUSAL OF THE DECISIONS OF RAIN COMMODIT IES (SUPRA) AND GROWTH AVENUES (SUPRA), WE NOTICE THAT BOTH THE DECISIONS DEALT WI TH THE ISSUE OF TAXABILITY OF CAPITAL GAINS IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THES E CAPITAL GAINS WERE OTHERWISE INCOME U/S 2(24) OF THE ACT AND EXCLUSION WAS CLAIM ED IN COMPUTING BOOK PROFIT U/S 115JB ON THE GROUND THAT THE SAID CAPITAL GAINS WAS EXEMPT EITHER U/S 47(IV) OR U/S 54EC OF THE ACT, WHICH THE TRIBUNAL DID NOT AGREE. IN TH E PRESENT CASE, HOWEVER, WE ARE DEALING NOT WITH CAPITAL GAINS BUT WITH PURE CAPITAL RECEIP T, WHICH DOES NOT EVEN HAVE ANY INCOME, PROFITS OR GAINS EMBEDDED THERE IN. T HE IMPUGNED INCENTIVE GRANTED TO THE ASSESSEE IS PURE AND SIMPLE CAPITAL RECEIPT, IN TER MS OF OUR DECISION ON GROUND NO. 1 AT PARA 10 HERE-IN-ABOVE, WHICH IN TURN IS SUPPORTED B Y THE PRINCIPLES LAID DOWN BY THE APEX COURT, VARIOUS HIGH COURTS & SPECIAL BENCH OF THE TRIBUNAL. THAT BEING THE CASE, IT DOES NOT HAVE ANY INCOME OR PROFIT ELEMENT EMBEDDED IN IT, SINCE THE INCENTIVE WAS GRANTED TO ENCOURAGE INDUSTRIAL GROWTH OF INDUSTRIA LLY NON DEVELOPED AREA. NO ONE CAN MAKE PROFIT OUT OF THE SUBSIDY OR INCENTIVE GRANTED TO IT. HENCE, IT IS NOT CHARGEABLE TO TAX UNDER THE INCOME TAX ACT AS HELD BY THE APEX COURT IN THE CASE OF PADMARAJE (SUPRA) AND IN THE LIGHT OF OUR FACT FINDING AS ABOVE, CLEARLY NOT INCLUDIBLE IN P&L ACCOUNT PREPARED UNDER PART II & PART III OF SCHEDULE VI TO THE COMP ANIES ACT. 13.5 THE GENESIS OF SEC 115J, THEREAFTER SECTION 1 15JA AND NOW SECTION 115JB WAS TO ENSURE THAT THE ASSESSEE, WHILE MAKING PROFIT FROM OPERATIONS, SHOULD NOT ENJOY TAX FREE STATUS DUE TO VARIOUS DEDUCTIONS AVAILABLE UNDER TH E INCOME TAX ACT. THERE WAS NEVER 31 ANY INTENTION OF THE LEGISLATURE TO TAX WHAT IS NOT INCOME AT ALL. IN A RECENT DECISION, THE HONBLE APEX COURT IN THE CASE OF INDO RAMA SYNTHET ICS (I) LTD -VS- CIT (2011) 330 ITR 363 (SC) HAS HELD THAT THE OBJECT OF MAT PROVISIONS IS TO BRING OUT THE REAL PROFIT OF THE COMPANIES. THE THRUST IS TO FIND OUT THE REAL WORKI NG RESULTS OF THE COMPANY. INCLUSION OF CAPITAL RECEIPT IN THE COMPUTATION OF MAT WOULD DEF EAT TWO FUNDAMENTAL PRINCIPLES. FIRSTLY, IT WOULD LEVY TAX ON RECEIPT WHICH IS NOT IN THE NATURE OF INCOME AT ALL AND SECONDLY IT WOULD NOT RESULT IN ARRIVING AT REAL WO RKING RESULTS OF THE COMPANY. THE REAL WORKING RESULT CAN BE ARRIVED AT ONLY AFTER EXCLUDI NG THIS RECEIPT WHICH HAS BEEN CREDITED TO P&L A/C AND NOT OTHERWISE. 13.6 FOR BETTER UNDERSTANDING OF THE ISSUE, LET US ALSO EXTRACT DOWN RELEVANT PROVISION OF SEC. 115JB AS UNDER EVERY ASSESSEE, BEING A COMPANY, SHALL FOR THE PUR POSE OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVAN T PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956). 13.7 ON CONSIDERATION OF THE ABOVE, IT IS APPARENT THAT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB PROFIT AND LOSS A/C SHALL BE PREPARED AS PER PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT. PART II OF SCHEDU LE VI PRESCRIBES THE REQUIREMENTS AS TO PROFIT AND LOSS A/C. CLAUSE 2(A) OF PART II CLEA RLY SPELLS THAT THE PROFIT AND LOSS A/C SHALL BE SO MADE OUT AS CLEARLY TO DISCLOSE THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE ACCOUNTS. HENCE, IN OUR VIEW, IF P&L ACCOUNTS DO NOT REFLECT THE TRUE RESULT OF THE WORKING OF THE COMPANY FOR THE Y EAR, IT CANNOT BE SAID TO BE AS PER 32 SCHEDULE VI, PART II & III OF THE COMPANIES ACT AND IT WOULD NECESSITATE CORRECTIVE ADJUSTMENT IN THAT SITUATION SO AS TO COMPLY WITH S CHEDULE VI, PART II & III. 13.8 WITH THE ABOVE DISCUSSIONS, THE ONLY ISSUE LEF T TO BE CONSIDERED IS WHETHER EXCLUSION OF THE ABOVE CAPITAL RECEIPT IS IN LINE W ITH THE PRINCIPLES AS LAID DOWN BY HONBLE APEX COURT IN THE CASE OF APOLLO TYRES (SUP RA). IN THE CASE OF APOLLO TYRES (SUPRA), THE QUESTION BEFORE THE APEX COURT WAS WHE THER AN AO CAN, WHILE ASSESSING A COMPANY FOR INCOME TAX U/S 115J OF THE IT ACT, QUES TION THE CORRECTNESS OF THE P&L A/C PREPARED IN ACCORDANCE WITH REQUIREMENTS OF PARTS I I AND III OF SCH. VI TO THE COMPANIES ACT. FROM THE QUESTION AS FRAMED BEFORE THE APEX CO URT IT IS CLEAR THAT THE ISSUE BEFORE THE HONBLE COURT WAS WITH REGARD TO POWER OF THE A O TO RECAST AUDITED ACCOUNTS PREPARED IN ACCORDANCE WITH PART II AND PART III OF THE SCH. VI TO THE COMPANIES ACT. THEREFORE, FOR APPLICABILITY OF THE DECISION OF THE APEX COURT THE PREREQUISITE IS THAT THE ACCOUNTS ARE PREPARED IN ACCORDANCE WITH PART II AN D PART III TO SCH. VI OF THE COMPANIES ACT. IF HOWEVER THE P&L ACCOUNTS ARE NOT IN ACCORDA NCE WITH PART II AND III OF SCH. VI TO THE COMPANIES ACT, THE SAID DECISION CANNOT BE APPL IED AND IN THAT SITUATION IT DOES NOT PROHIBIT THE NEEDFUL ADJUSTMENT. 13.9 OUR VIEW AS ABOVE IS SUPPORTED BY THE DECISION OF THE SPECIAL BENCH IN THE CASE OF RAIN COMMODITIES (SUPRA), WHICH INCIDENTALLY HAS BE EN RELIED UPON BY DR. ON EXAMINATION OF THE SAID ORDER, WE FIND THAT AT PARA 17 (LAST SUB-PARA) & PARA 18, AFTER CONSIDERING THE DECISION OF SUPREME COURT IN APOLLO TYRES LTD (SUPRA), SPECIAL BENCH HAVE HELD THAT IF PROFIT & LOSS ACCOUNT IS NOT IN A CCORDANCE WITH PART II & PART III OF SCHEDULE VI TO THE COMPANIES ACT, IT IS PERMISSIBLE TO ALTER THE NET PROFIT SO AS TO MAKE IT IN ACCORDANCE WITH PART II & III OF SCHEDULE VI, WH ICH IS THE STARTING POINT FOR 33 COMPUTATION OF BOOK PROFIT IN TERMS OF SECTION 11 5JB. WE HAVE CONCLUDED IN PARA 13.4 ABOVE, THAT INCLUSION OF SALES TAX SUBSIDY IN THE P ROFIT AND LOSS IS NOT IN ACCORDANCE WITH SCHEDULE VI, PART II & III. HENCE IT IMPLIES THAT N EEDFUL ADJUSTMENT TO EXCLUDE THE SAME IS NOT ONLY PERMISSIBLE, BUT IS MANDATORY SO AS TO MAKE THE PROFIT & LOSS ACCOUNT COMPLIANT WITH THE BASIC REQUIREMENT OF SECTION 115 JB. 13.10 OUR VIEW PER PARA 13.8 ABOVE IS ALSO SUPPORT ED BY THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF BOMBAY DIAMOND (SUPRA) & TH AT OF BANGALORE TRIBUNAL IN THE CASE OF SYNDICATE BANK (SUPRA) [BOTH ANALYZED IN PA RA 12.1 ABOVE], WHERE ALSO TRIBUNAL, AFTER CONSIDERING THE DECISION OF SUPREME COURT IN THE CASE OF APOLLO TYRES (SUPRA) AND EXPLAINING THE SAME, HAVE PERMITTED ADJUSTMENT TO T HE PROFIT AS PER P&L ACCOUNT, SO AS TO COMPLY WITH SCHEDULE VI, PART II & PART III OF T HE COMPANIES ACT, WHICH IS A PRE- REQUISITE FOR SECTION 115JB. 13.11 IN THE LIGHT OF THE AFORESAID, THE ADDITIONA L GROUND FILED BY THE DEPARTMENT IS REJECTED AND WE HOLD THAT CAPITAL RECEIPT IN THE FO RM OF SALES TAX INCENTIVE NEEDS TO BE EXCLUDED FROM PROFIT AS PER P&L ACCOUNT FOR THE YEA R IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THIS GROUND OF THE DEPARTMENT IS THUS DISMISSED. 14. NOW WE WILL TAKE UP THE APPEAL FILED BY REVENUE IN ITA NO. 615/JP/2010 FOR A.Y. 2005-06 AND THE SAME IS DISPOSED OFF IN THE FO LLOWING MANNER: 15. GROUND NO. 1 AND ADDITIONAL GROUND RAISED BY TH E REVENUE ARE IDENTICAL TO GROUND NO. 1 AND ADDITIONAL GROUND FOR A.Y. 2004-05 IN ITA NO. 614/JP/2010. BOTH THE GROUNDS PREFERRED BY THE REVENUE ARE THUS REJECTED AND HENCE DECIDED IN FAVOUR OF THE ASSESSEE. FOR THE REASONS STATED THEREIN, THE APPEA L FILED BY THE REVENUE IS DISMISSED. 34 16. NEXT WE WILL TAKE UP THE APPEAL FILED BY THE DE PARTMENT IN ITA NO. 635/JP/201 FOR THE A.Y. 2006-07 AND THE SAME IS DISPOSED OFF I N THE FOLLOWING MANNER. 17. GROUND NO. 1 AND ADDITIONAL GROUND RAISED BY TH E REVENUE ARE IDENTICAL TO GROUND NO. 1 AND ADDITIONAL GROUND FOR A.Y. 2004-05 IN ITA NO. 614/JP/2010. LD. COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED IN HIS KE Y SUBMISSIONS FILED BEFORE US, THAT BESIDES THE SUBSIDY AS DEALT WITH IN EARLIER YEARS, THE ASSESSEE ALSO RECEIVED FURTHER SUBSIDY UNDER RAJASTHAN INVESTMENT PROMOTION POLIC Y 2003 FOR EXPANSION OF ITS UNDERTAKING AT RAS IN THE STATE OF RAJASTHAN, THE P URPOSE OF INCENTIVE WHERE-UNDER IS ALSO TO ENCOURAGE SETTING UP OF NEW UNIT OR EXPANSION OF EXISTING UNITS. COPY OF THE SCHEME AS WELL AS ELIGIBILITY CERTIFICATE DATED 08-09-2006 GRANTED PURSUANT TO THE SAID SCHEME HAS BEEN FILED AT PG 26-40 AND PG. 41 OF PAPER BOOK RESPECTIVELY. WE FURTHER FIND THAT OBJECT OF ABOVE SCHEME ARE IDENTICAL WITH THE PURPO SE OF THE OTHER SCHEME EXAMINED BY THE TRIBUNAL AND US IN AYS 2003-04 & 2004-05. ON EX AMINATION OF THE SCHEME AS FILED BY THE ASSESSEE AND THE ELIGIBILITY CERTIFICATE ISS UED UNDER RIPS 2003, WE FIND THAT ON COMPLETION OF THE EXPANSION OF THE RAS UNIT OF THE ASSESSEE DURING THE YEAR WHEREIN IT MADE CAPITAL INVESTMENT OF MORE THAN RS. 200 CRS., IT BECAME ELIGIBLE FOR INCENTIVE TO BE AVAILED OVER A PERIOD OF SEVEN YEARS FROM 21-12-200 5. WE FURTHER FIND THAT THE PURPOSE OF GRANTING INCENTIVE UNDER BOTH RAJASTHAN INCENTIV E SCHEME 1998 AND RAJASTHAN INVESTMENT PROMOTION POLICY 2003 WAS TO INCENTIVIZE SETTING UP OF A NEW UNIT OR CARRYING OUT EXPANSION OF EXISTING UNIT AND NOT FOR RUNNING THE BUSINESS MORE PROFITABLY. LD. DR IN HIS SUBMISSION OR IN THE COURSE OF HEARING HAS N OT POINTED OUT ANY CONTRARY FACTS FOR THE YEAR UNDER CONSIDERATION. HENCE, RESPECTFULLY F OLLOWING THE DECISION OF PONNI SUGARS (SUPRA) AND OTHER DECISIONS ANALYZED EARLIER TO THA T EFFECT AND THE DECISION OF THIS BENCH 35 IN ITA NO. 942/JP/2008 AND IN TERMS OF OUR DECISION IN AY 2004-05 VIDE PARA 10.3 AND 13.11 ABOVE, WE DISMISS THIS GROUND OF THE REVENUE AND HOLD THAT INCENTIVE GRANTED BOTH UNDER RAJASTHAN INCENTIVE SCHEME 1998 & UNDER RIPS, 2003 IS CAPITAL RECEIPT. HENCE, GROUND NO. 1 & ADDITIONAL GROUND FILED BY THE REVEN UE ARE REJECTED & DECIDED IN FAVOUR OF THE ASSESSEE. 18. GROUND NO. 2 OF THE DEPARTMENT IS REGARDING DEL ETION OF DISALLOWANCES MADE BY THE AO ON ACCOUNT OF LONG TERM CAPITAL LOSS OF RS. 56,30,628/-. 19. AT THE OUTSET, THE LD DR SUBMITTED THAT THE LON G TERM CAPITAL LOSS ARISING ON ACCOUNT OF SALE OF LAND BY WAY OF COMPROMISE DEED D ATED 14-02-2006 IS A SALE MADE TO THE RELATIVE OF THE ASSESSEE AND HENCE CAPITAL LOSS IS NOT ALLOWABLE. 20. ON THE OTHER HAND, LD COUNSEL OF THE ASSESSEE S UBMITTED THAT ON PERUSAL OF THE ORDER OF THE A.O., IT COULD BE NOTED THAT THE ONLY ISSUE FOR DISALLOWANCE RAISED BY THE A.O. IS THE FACT THAT REGISTERED DEED OF THE PROPER TY IS STILL PENDING AND THE TRANSFER HAS BEEN EFFECTED BY A COMPROMISE DEED AND HENCE IT COU LD NOT BE REGARDED AS TRANSFER. THE CONTENTION OF THE LD DR THAT THE SALE WAS MADE TO A RELATED PARTY IS WITHOUT ANY BASIS AND FACTS ON RECORD. THE A.O. IN THE ORDER OR REVEN UE BEFORE CIT(A) HAD NEVER ALLEGED THAT IT IS A RELATED PARTY TRANSACTION AND HENCE LO SS IS REQUIRED TO BE DISALLOWED. LD. COUNSEL ALSO POINTED OUT THAT LD. DR HAS ALSO NOT B ROUGHT OR PLACED BEFORE US, ANY EVIDENCE TO THAT EFFECT. THUS THE ALLEGATION OF REL ATED PARTY IS NOT FACTUALLY CORRECT AND OUT RIGHT NOT TENABLE. ON THE GROUND FOR WHICH DISALLOW ANCE HAS BEEN MADE BY THE AO, NAMELY, ABSENCE OF REGISTERED SALE DEED, IT WAS THE REFORE SUBMITTED BY THE LD COUNSEL THAT THE SAID ISSUE HAS BEEN DECIDED BY VARIOUS HIG H COURTS IN FAVOUR OF THE ASSESSEE AND HENCE ORDER OF CIT(A) MAY BE UPHELD. 36 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE RELEVA NT MATERIAL ON RECORD, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT (A). THE CIT (A) RIGHTLY FOLLOWING THE DECISION OF CHATURBHUJ DWARKADAS KAPADIA VS. CIT (2003) 260 ITR 491 (BOM) HELD THAT EVEN IF REGISTRATION OF DEED HAS NOT TAKEN PLACE, IT WOULD BE REGARDED AS TRANSFER. ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A). THIS GROUND OF THE DEPARTMENT IS THUS DISMISSED. 22. IN THE RESULT, ALL THE THREE DEPARTMENTAL APPEA LS ARE DISMISSED. 23. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09 .09.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE ACIT, CIRCLE-2, AJMER. SHREE CEMENT LTD., BEAWAR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 614(3)/JP/2010) BY ORDER, AR ITAT JAIPUR.