ACIT CIR 4(2), MUMBAI V. HARINGAR SUGAL MILLS LTD, MUMBAI

ITA 772/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5681 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 27-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 03-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Assessee Lawyers: JAYESH DESAI
• Keywords: Depreciation; Capital receipt
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 772/MUM/2012 ASSESSMENT YEAR: 2008-09 THE ACIT, CIR 4(2) MUMBAI-. VS. M/S. HARINAGAR SUGAR MILLS. LTD. WORLD TRADE CENTRE, CENTRE NO.-1, 10 TH FLOOR, CUFFE PARADE, COLABA, MUMBAI.400 005 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACH 2831 H ASSESSEE BY : SHRI S.E. DASTUR, MR. BHARATH JANARTHANAN & SHRI JAYESH DESAI REVENUE BY : SHRI K.C.P. PATNAIK DATE OF HEARING : 27.01.2014 DATE OF PRONOUNCEMENT : 31.01.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD.CIT(A) -8, MUMBAI DATED 23.11.2011 FOR THE ASSES SMENT YEAR 2008-09. 2. GROUND NO. 1 RELATES TO THE DECISION OF THE LD.C IT(A) IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DEDUCTION OF CAPITAL S UBSIDY FROM WDV OF PLANT AND MACHINERY AND THE DISALLOWANCE OF PROPORTIONATE DEP RECIATION. 2.1 BRIEFLY STATED, THE ASSESSEE, A COMPANY DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, RECEIVED A SUBSIDY OF RS.4,11,43,000/- UNDER BIHAR INCENTIVE PACKAGE, 2006 FOR UNDERTAKI NG EXPANSION OF THE CAPACITY ITA NO. 772/MUM/2012 M/S. HARINAGAR SUGAR MILLS. LTD. ASSESSMENT YEAR: 2008-09 2 FROM 8500 TCD TO 10000TCD. THE SAID SCHEME WAS FORM ULATED BY THE GOVERNMENT OF BIHAR TO PROMOTE THE ESTABLISHMENT OF NEW UNITS AND FOR EXPANSION OF CAPACITY OF EXISTING UNITS. ACCORDING TO THE SAID SCHEME, 10% S UBSIDY ON FIXED CAPITAL INVESTMENT (MACHINERY & EQUIPMENTS) SUBJECT TO MAXI MUM SUBSIDY UPTO TO RS. 10 CRORES WAS GRANTED IN CASE OF NEW MILL/EXPANSION OF CAPACITY. THE ASSESSEE COMPANY HAD TREATED THE SAID SUBSIDY AS CAPITAL REC EIPT AND CREDITED THE SAME TO THE CAPITAL RESERVE ACCOUNT WITHOUT CREDITING THE S AME TO P/L ACCOUNT. ACCORDING TO THE ASSESSEE, THIS SUBSIDY WAS NOT REQUIRED TO THE REDUCED FROM THE COST OF THE FIXED ASSETS ACQUIRED FOR THE EXPANSION OF THE CAPACITY O F THE SUGAR MILL. HOWEVER, IN THE ASSESSMENT FRAMED, THE AO HAD REDUCED THE SAID SUBS IDY FROM THE ACTUAL COST (WDV) OF PLANT AND MACHINERY FOR THE PURPOSE OF CAL CULATING ALLOWABLE DEPRECIATION AND THEREBY DISALLOWED A DEPRECIATION OF RS.1,02,85 ,750/-. ON APPEAL, THE LD.CIT(A) DELETED THE ADDITION MADE BY THE AO. ACCORDING TO T HE LD.CIT(A), THE IMPUGNED SUBSIDY WAS GRANTED WITH THE OBJECT OF INDUCING ENT REPRENEURS TO ESTABLISH SUGAR INDUSTRY/ EXPAND THE CAPACITY IN THE STATE OF BIHAR AND WHERE THE SUBSIDY WAS GRANTED AND PERCENTAGE OF FIXED CAPITAL COST TAKEN AS BASIS FOR DETERMINING THE SUBSIDY THAT WOULD ONLY BE A MEASURE ADOPTED UNDER THE SCHEME TO QUANTIFY THE SUBSIDY. HENCE, THE SAME COULD NOT BE CONSIDERED AS A PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE ACTUAL COST. AGGRIEVED B Y THE IMPUGNED DECISION, THE REVENUE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 2.2 BEFORE US, THE LD.DR HAS CONTENDED THAT THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION BY RELYING ON THE ORDER OF TH E AO. ON THE OTHER HAND, THE LD. SENIOR COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTEN TION TO THE INCENTIVE PACKAGE RESOLUTION OF THE BIHAR STATE GOVERNMENT DATED 12.0 9.2006 WHICH IS AVAILABLE AT PAGE NOS. 11 TO 17 OF THE PAPER BOOK AND DEMONSTRAT ED THE PURPOSE FOR WHICH THE INCENTIVE SCHEME HAS BEEN DEVISED BY THE GOVERNMENT OF BIHAR. FURTHER, THE LD. COUNSEL HAS EXPLAINED THAT THE AMOUNT OF SUCH SUBSI DY CANNOT BE HELD TO REDUCE THE ACTUAL COST OF ASSETS U/S 43(1) EXPLANATION 10 OF T HE ACT. THE LD. COUNSEL HAS ALSO PLACED RELIANCE ON THE DECISIONS OF THE TRIBUNAL IN THE CASES OF M/S. GODREJ AGROVET LTD. IN ITA NO. 1629/MUM/2009 FOR THE ASSESSMENT YEAR 2 005-06, INVENTAA CHEMICAL LTD. VS. ACIT (42 SOT 249), SASISRI EXTRACTIONS LTD. VS. ACIT (122 ITD ITA NO. 772/MUM/2012 M/S. HARINAGAR SUGAR MILLS. LTD. ASSESSMENT YEAR: 2008-09 3 428) AND CAPITAL FOODS EXPORTS PVT. LTD. VS. ACIT (139 ITD 584) AND THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. P.J. CHEMICALS LTD [210 ITR 830 (SC)]. 2.3 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON THIS GROUND OF APPEAL. A READING OF THE INCENTIVE PACKAGE RESOLUTI ON OF THE BIHAR GOVERNMENT DATED 12.09.2006 INDICATES THAT THE OBJECT OF THE SAID SC HEME IS FOR THE DEVELOPMENT OF SUGAR INDUSTRY IN THE STATE AND ESTABLISHMENT OF NE W SUGAR MILLS, ESTABLISHMENT OF CO-INDUSTRIES BASED ON SUGARCANE AND TO SUPPLEMENT THE EFFORTS IN EXPANDING CAPACITY OF PRESENT SUGAR MILLS, AND IN ORDER TO SO LVE THE PROBLEM OF ADDITIONAL FINANCIAL LOAD FACED BY THE INVESTORS AND IN ORDER TO MINIMIZE THE BURDEN ON THEM THE SURPLUS FUNDS SO GENERATED BY THE STATE INCENTI VE POLICY COULD BE USED FOR REPAYMENT OF TERM LOAN TAKEN FROM CENTRAL FINANCIAL INSTITUTIONS AND BANKS SO THAT THESE PROJECTS COULD BECOME VIABLE. PARA 2 OF THE S AID RESOLUTION FURTHER STATES THAT UNDER THE NEW INDUSTRIAL POLICY OF THE STATE, UNDER THE PROVISIONS OF ATTRACTING CAPITAL INVESTMENT FOR TECHNICAL DEVELOPMENT AND EX PANSION OF CAPACITY OF THE SUGAR FACTORY AS WELL AS FOR THE ESTABLISHMENT OF NEW SUG AR MILLS, APPROVAL OF A PLANNED SUGAR INDUSTRY INCENTIVE PACKAGE WAS DISCUSSED SO THAT THE ENTREPRENEURS OF THE PRIVATE SECTOR COULD BE ATTRACTED FOR THE ESTABLISH MENT OF SUGAR INDUSTRY AND OTHER INDUSTRIES BASED ON SUGARCANE OR SUGARCANE JUICE CO ULD BE ATTRACTED AND WORKING/ INSTALLED SUGAR MILLS ALSO MAY EXPAND THEIR CAPACIT Y AND MAY ESTABLISH OTHER INDUSTRIES BASED ON CO-PRODUCTS OF THE SUGARCANE IN THE STATE. 2.3.1 IT IS PERTINENT TO MENTION THAT THE LD.CIT(A) HAS STATED THAT THE WORDING OF THE SAID SCHEME READ TOGETHER WITH THE SAID GUIDELI NES ISSUED BY THE BIHAR GOVERNMENT INDICATES THAT THE SUBSIDY IS GRANTED WI TH THE OBJECT OF INCENTIVE FOR THE ENTREPRENEURS TO ESTABLISH SUGAR INDUSTRY/EXPAND TH E CAPACITY IN THE STATE OF BIHAR AND THUS THE SAID SUBSIDY IS GIVEN FOR SETTING UP O F INDUSTRY OR EXPANSION OF INDUSTRY IN THE STATE OF BIHAR. WE CONCUR WITH THE SAID OBSE RVATION OF THE LD.CIT(A) THAT THE SAID SUBSIDY IS GIVEN FOR SETTING UP OF INDUSTRY OR EXPANSION OF INDUSTRY IN THE STATE OF BIHAR WHICH IS THE OBJECT OF THE SCHEME. IN THIS CONNECTION, IT IS RELEVANT TO STATE THAT IN THE CASE OF SASISRI EXTRACTIONS LTD. (SUPRA), THE TRIBUNAL HAS HELD THAT WHERE SUBSIDY IS GRANTED AS PERCENTAGE OF FIXED CAPITAL C OST TAKEN AS BASIS FOR DETERMINING THE SUBSIDY THAT WOULD ONLY BE A MEASURE ADOPTED UN DER THE SCHEME TO QUANTIFY ITA NO. 772/MUM/2012 M/S. HARINAGAR SUGAR MILLS. LTD. ASSESSMENT YEAR: 2008-09 4 SUBSIDY, THE SAME COULD NOT BE CONSIDERED AS A PAYM ENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE ACTUAL COST. THE SAME VIEW HAS BEEN FOLLOWED BY THE TRIBUNAL IN A SUBSEQUENT CASE, NAMELY M/S. GODREJ AGROVET LTD. (SUPRA), THE ORDER TO WHICH THE PRESENT ACCOUNTANT MEMBER IS ALSO A PARTY . IT IS PERTINENT TO MENTION THAT IN THE APPEAL PREFERRED BEFORE THE HIGH COURT AGAIN ST THE SAID DECISION OF THE TRIBUNAL, THE REVENUE HAS NOT DISPUTED THE DECISION OF THE TRIBUNAL IN THE APPEAL BEFORE THE HONBLE HIGH COURT. THIS SUGGESTS THAT T HE REVENUE HAS ACCEPTED THE DECISION OF THE TRIBUNAL IN THE SAID CASE. THE HON BLE APEX COURT, IN THE CASE OF P.J. CHEMICALS LTD. (SUPRA), HAS HELD THAT THE EXPRESSION ACTUAL COST IN SECTION 43(1) OF THE INCOME TAX ACT NEEDS TO BE INTERPRETED LIBERALL Y AND SUBSIDY DOES NOT PARTAKE THE INCIDENTS WHICH ATTRACT THE CONDITIONS FOR ITS DEDUCTIBILITY FROM ACTUAL COST. THE AMOUNT OF SUBSIDY IS NOT TO BE DEDUCTED FROM THE AC TUAL COST AND SECTION 43(1) FOR THE PURPOSE OF CALCULATION OF DEPRECIATION. ALSO, T HE TRIBUNAL IN THE CASE OF INVENTAA CHEMICAL LTD (SUPRA) HAS HELD THAT IF PAYMENT OF SUBSIDY IS NOT RELATED TO ACTUAL ACQUISITION OF ASSETS AND SUBSIDY IS GRANTED ON CAP ITAL INVESTMENT ON LAND, BUILDING AND MACHINERY, SUCH SUBSIDY CANNOT BE REDUCED FROM THE VALUE OF ASSET (WDV). APPLYING THESE RATIO TO THE FACTS OF THE ASSESSEES CASE, AFTER NOTING THAT THE REVENUE HAS NOT BROUGHT ON RECORD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE IS DIRECTLY OR INDIRECTLY RESULTED IN ACQUISITION OF ANY ASSET, WE ARE OF THE CONSIDERED OPINION THAT THE CAPITAL SUBSIDY OF RS.4,11,43,000/- RECEIVED BY THE ASSESSEE COMPANY UNDER BIHAR INCENTIVE PACKAGE 2006 FOR UNDERTAKING EXPA NSION OF ITS CAPACITY FROM 8500 TCD TO 10000 TCD CANNOT BE DEDUCTED FROM WDV OF PLA NT AND MACHINERY. SINCE THE LD.CIT(A) HAS CORRECTLY APPRECIATED THE FACTS AND T HE POSITION OF LAW AFOREMENTIONED FOR REVERSING THE ORDER OF THE AO, WE DO NOT FIND A NY INFIRMITY IN THE DECISION OF THE LD.CIT(A) ON THIS COUNT AND THUS THE SAME IS UPHELD . RESULTANTLY, GROUND NO.1 IS DISMISSED . 3. IN GROUND NO. 2 THE REVENUE HAS AGITATED THE ACT ION OF THE LD.CIT(A) IN TREATING THE SUBSIDY RECEIVED AS EXCISE DUTY REIMBU RSEMENT IS NOT A REVENUE RECEIPT. 3.1 BRIEFLY STATED, THE ASSESSEE COMPANY HAD RECEIV ED SUBSIDY OF RS.2,26,70,311/- BY WAY OF REIMBURSEMENT OF EXCISE DUTY UNDER THE BIHAR INCENTIVE PACKAGE 2006 WHICH THE ASSESSEE COMPANY TREATED AS CAPITAL RECEIPT. HOWEVER, IN ITA NO. 772/MUM/2012 M/S. HARINAGAR SUGAR MILLS. LTD. ASSESSMENT YEAR: 2008-09 5 THE ASSESSMENT FRAMED, THE AO TREATED THE SAME AS R EVENUE RECEIPT. ACCORDING TO THE AO, THE SUBSIDY IN THE FORM OF REIMBURSEMENT OF EXCISE DUTY WENT ON TO REDUCE THE COST OF THE ASSESSEE AND THE PAYMENT OF EXCISE DUTY FORMS PART OF P&L ACCOUNT, THE PAYMENT OF WHICH HAD TO BE TREATED AS REVENUE R ECEIPT/REVENUE EXPENSE. ACCORDINGLY, THE AO TREATED THE IMPUGNED AMOUNT AS REVENUE RECEIPT AND THEREBY MADE AN ADDITION OF RS.2,26,70,311/- TO THE TOTAL I NCOME OF THE ASSESSEE. ON APPEAL, THE LD.CIT(A) DELETED THE IMPUGNED ADDITION AS THE INCENTIVE SCHEME WAS FORMULATED BY THE GOVERNMENT OF BIHAR FOR ATTRACTIN G CAPITAL INCENTIVE AND TO ENCOURAGE SETTING UP THE INDUSTRY/EXPAND THE UNIT. THE LD.CIT(A) IN HIS ORDER, RELIED ON VARIOUS DECISIONS WHERE IT HAS BEEN HELD THAT WH EN THE SUBSIDY SCHEME IS TO ENABLE THE ASSESSEE IN SETTING UP THE NEW UNIT OR T O EXPAND THE EXISTING UNIT, THEN THE RECEIPT OF THE SUBSIDY IS ON CAPITAL ACCOUNT. A GGRIEVED BY THE IMPUGNED DECISION THE REVENUE HAS RAISED THIS GRANTED IN THE APPEAL B EFORE US. 3.2 BEFORE US, THE LD. DR HAS CONTENDED THAT THE RE IMBURSEMENT OF THE EXCISE DUTY HAS TO BE TREATED AS REVENUE RECEIPT BY RELYIN G ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LD.SENIOR COUNSEL FOR THE ASSESSEE HAS ARGUED THAT THE LD.CIT(A) HAS CORRECTLY DELETED THE IMPUGNED ADDITION BY TREA TING THE REIMBURSEMENT OF EXCISE DUTY AS CAPITAL IN NATURE BY RELYING ON THE DECISIO NS OF THE HONBLE APEX COURT IN THE CASES OF MEPCO INDUSTRIES LTD. VS. CIT 319 ITR 208, CIT VS. PONNI SUGARS AND CHEMICALS LTD. 306 ITR 392, THE DECISION OF THE CALCUTTA HIGH COUR T IN THE CASE OF CIT VS RASOI LTD. 335 ITR 438 (CAL), THE DECISION OF THE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. TRIPTI MENTHOL INDUSTRIES 35 TAXMANN.COM 515 (GUJARAT) AND THE DECISION OF THE J&K HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS VS. CIT 333 ITR 335 (J&K). 3.3 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. IT IS NOT DISPUTED THAT THE SUBSIDY SCHEME FORMULATED BY THE GOVERNMENT OF BIHAR IS FOR THE PURPOSE OF ATTRACTING CAPITAL INVESTMENT AND TO ENC OURAGE SETTING UP THE INDUSTRY/EXPAND THE EXISTING UNIT. IT IS PERTINENT TO MENTION THAT THE CHARACTER OF A SUBSIDY IN THE HANDS OF THE ASSESSEE HAS TO BE DETE RMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. THE POINT O F TIME AT WHICH THE SUBSIDY IS PAID AND THE SOURCE OR THE FORMS OF SUBSIDY ARE IMM ATERIAL. IF THE OBJECT OF THE THE ITA NO. 772/MUM/2012 M/S. HARINAGAR SUGAR MILLS. LTD. ASSESSMENT YEAR: 2008-09 6 SUBSIDY SCHEME IS TO ENABLE THE ASSESSEE IN SETTING UP THE NEW UNIT OR TO EXPAND THE EXISTING UNIT, THEN THE RECEIPT OF THE SUBSIDY IS TO BE TREATED ON CAPITAL ACCOUNT. THIS ESTABLISHED POSITION OF LAW HAS BEEN RECOGNISE D BY VARIOUS JUDICIAL PRONOUNCEMENTS WHICH HAVE BEEN RELIED BY THE LD.CIT (A) IN HIS ORDER AND ALSO THE DECISIONS RELIED ON BY THE LD.COUNSEL FOR THE ASSES SEE AS AFOREMENTIONED. IN VIEW OF THAT MATTER WE DO NOT FIND INFIRMITY IN THE DECISIO N OF THE LD.CIT(A) IN DELETING THE IMPUGNED ADDITION MADE BY THE AO AND THUS THE ORDER OF THE LD.CIT(A) ON THIS COUNT IS UPHELD. GROUND NO. 2 IS DISMISSED. 4. IN GROUND NO. 3, THE REVENUE HAS AGITATED THE AC TION OF THE LD.CIT(A) IN DIRECTING THE AO TO DELETE THE ADDITIONS MADE TO TH E BOOK PROFIT ON ACCOUNT OF EXCESS DEPRECIATION AND SUBSIDY RECEIVED BY WAY OF EXCISE DUTY. 4.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS NOTED THAT THE ISSUE RAISED IN THIS GROUND IS SQUARELY CO VERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT 250 ITR 273 , WHEREIN IT HAS BEEN HELD THAT THE AO WHILE COMPUTIN G THE INCOME UNDER SECTION 115J HAS ONLY THE POWER TO EXAMINE WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES AC T AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE SAID ACT. THE AO, THEREAFTER, HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDE D FOR IN THE EXPLANATION TO THE SAID SECTION. TO PUT IT DIFFERENTLY THE AO DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWS IN THE P&L ACCOUNT EXCEPT TO T HE EXTENT PROVIDED FOR THE EXPLANATION OF SECTION 115J. ALSO, IT IS NOTED THAT WHILE DECIDING GROUNDS NO. 1 & 2 IN RESPECT OF THE ADDITIONS UNDER NORMAL PROVISIONS OF THE INCOME IN RESPECT OF TREATMENT OF THE SAID SUBSIDY, WE CONFIRMED THE DEL ETIONS MADE BY THE LD.CIT (A) AND HENCE THE ADDITIONS MADE IN COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB IS NOT SUSTAINABLE. SINCE, THE FACTS AND POSITION OF L AW AS AFOREMENTIONED HAS BEEN CORRECTLY APPRECIATED BY THE LD.CIT(A) FOR ARRIVING AT THE DECISION IN DELETING THE IMPUGNED ADDITIONS MADE ON THIS COUNT, WE DO NOT FI ND ANY JUSTIFIABLE REASON TO INTERFERE WITH THE DECISION OF THE LD.CIT(A) AND TH E SAME IS UPHELD. RESULTANTLY, GROUND NO. 3 IS DISMISSED. ITA NO. 772/MUM/2012 M/S. HARINAGAR SUGAR MILLS. LTD. ASSESSMENT YEAR: 2008-09 7 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 1 ST DAY OF JANUARY, 2014. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 31.01.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR H BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.