DCIT 2(1), MUMBAI V. CHENNAI CONTINER TERMINAL P.LTD, MUMBAI

ITA 893/MUM/2013

AI Insights

The case involves cross-appeals by Chennai Container Terminal Pvt. Ltd and the Deputy Commissioner of Income Tax (DCIT) concerning the assessment years 2008-09 and 2009-10. The primary issues revolved around the treatment of Duty Credit Entitlement under the Served from India Scheme (SFIS) and the eligibility of certain incomes for deduction under Section 80IA of the Income Tax Act. The Tribunal examined whether the SFIS credit should be considered a capital receipt or taxable income and whether the income from scrap sales and other miscellaneous incomes were eligible for deduction under Section 80IA. The Tribunal's decision favored the assessee's position on all counts, aligning with precedents and the specific provisions of the Income Tax Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123766 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 17-05-2023
• Assessment Year: 2008-2009
• Appeal Filed On: 31-01-2013
• Other Referred Cases: Container Corporation of India Ltd. v. DCIT [2022] 100 ITR (Trib) 74 (Delhi), ACIT v. Shree Pushkar Chemicals and Fertilizers Ltd. (2022) 192 ITD 618 (Mum)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Services rendered outside India; Capital receipt; Set aside
• Section: 10; 143(3); 142(1); 115JB; 143(1); 80IA; 192; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND MS. KAVITHA RAJAGOPAL, HON’BLE JUDICIAL MEMBER ITA NOs. 1118 & 1119/MUM/2013 (A.Ys: 2008-09 & 2009-10) Chennai Container Terminal Pvt. Ltd Level 1, Darabshaw House Narottam Morarji Road Ballard Estate, Mumbai- 400038 PAN: AABCC5838L v. DCIT-2(1) Aayakar Bhavan Room No. 561, 5 th Floor M.K. Road., Mumbai- 400020 (Appellant) (Respondent) ITA NOs. 893 & 894/MUM/2013 (A.Ys: 2008-09 & 2009-10) DCIT-2(1) Aayakar Bhavan Room No. 561, 5 th Floor M.K. Road., Mumbai- 400020 v. Chennai Container Terminal Pvt. Ltd Level 1, Darabshaw House Narottam Morarji Road Ballard Estate, Mumbai- 400038 PAN: AABCC5838L (Appellant) (Respondent) Assessee Represented by : Shri. Nishant Thakkar, Ms. Jasmin Amalsadvala & Ms. Sofiya Shanmugam Department Represented by : Shri R.S. Srivastav Date of conclusion of Hearing : 18.05.2023 Date of Pronouncement : 11.08.2023 ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 2 O R D E R PER S. RIFAUR RAHMAN (AM) 1. These cross appeals are filed by assessee and revenue against different orders of the Learned Commissioner of Income Tax (Appeals)-4, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 19.11.2012 & 20.11.2012 for the A.Ys. 2008-09 & 2009-10 respectively. 2. Since the issues raised in all these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Assessment Year 2008-09 as a lead assessment year. ASSESSMENT YEAR 2008-09 ITA.No. 1118/MUM/2013 (A.Y. 2008-09) (Assessee Appeal) 3. Brief facts of the case are, assessee filed e-return of income on 30.9.2008 declaring total income of ₹.3,39,12,516/-after setting off brought forward loss of ₹.43,64,96,138/- and claiming deduction u/s.80- IA(4) at ₹.12,41,74,419/- under the normal provisions and Book ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 3 Profit of ₹.65,41,07,146/- u/s 115JB of Income-tax Act, 1961 (in short “Act”). The return was duly processed u/s 143(1) of the Act. 4. The case was selected for scrutiny under CASS and notices u/s.143(2) and 142(1) of the Act, were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for. 5. The assessee engaged in the business of managing, developing and maintaining the container terminal at Dock at Chennai Port Trust. During assessment proceedings, Assessing Officer observed that in the assessment u/s 143(3) of the Act, in the assessee' case for AY 2007-08, addition was made of ₹.6,79,920/- on account of Transfer Pricing in view of the order u/s. 92CA(1) of the Transfer Pricing Officer, and the assessee was allowed to carry forward business losses of earlier years of ₹.43,58,16,218/- as against ₹. 43,64,96,138/-. Accordingly, the amount of ₹.43,58,16,218/- is set off in this year against the business income of the assessee. 6. Assessing Officer further with regard to Exclusion of other income from deduction u/s 80-IA(4) of the Act, noticed that during the previous ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 4 year under consideration, the assessee has claimed an amount of ₹.12,41,74,419/- as deduction u/s 80-IA(4) of the Act and he noticed that the assessee has included an amount of ₹.14,73,02,000/- as a component of the deduction u/s 80-IA(4) of the Act.The assessee was asked to furnish the details of the 'other income and the justification of including the same, in its claim of deduction u/s 80-IA(4) of the Act. 7. In response assessee filed its submissions vide letter dated 13.12.2010 and submitted that the “other income” amounting to ₹.10,11,87,000/- are eligible for deduction u/s. 80-IA of the Act. Assessing Officer has reproduced the submissions of the assessee in his Assessment Order at Page Nos. 2 & 3 of the Assessment Order for the sake of brevity the same are not reproduced. 8. After considering the submissions of the assessee, Assessing Officer rejected the same and proceeded to complete the assessment by determining the total income of the assessee at ₹.13,51,79,440/- by adding duty credit entitlement under Served from India Scheme of ₹.9,80,23,000/-, interest income of ₹.3,39,13,000/-, scrap sales of ₹.28,37,000/- and other income of ₹.3,27,000/-. ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 5 9. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed grounds of appeal objecting to the additions /disallowance made by the Assessing Officer. Before Ld.CIT(A) assessee has filed detailed submissions. After considering the detailed submissions, Ld.CIT(A) allowed the ground raised by the assessee in respect of scrap sales of ₹.28,37,000 and dismissed the other grounds raised by the assessee. Against this appellate order both assessee as well as revenue are in appeal before us. 10. Assessee has raised following grounds in its appeal: - “1. Erred in upholding the addition of Rs. 9,86,50,000/- made by the AO to the total income of the appellant. Income from duty credit entitlement of Rs. 9,80,00,000/- received under the served from India scheme (Duty credit entitlement) is capital receipt and not chargeable to tax : 2. erred in not appreciating the fact that receipt by way of duty credit entitlement is capital in nature and hence not liable to tax at all; 3. should have appreciated that the object of the scheme is to accelerate growth in export of services, so as to create a powerful and unique 'served from India brand; 4. failed to appreciate that as per the scheme the duty credit entitlement could be utilized largely against the import of capital goods and spares in this regard and hence the nature of duty credit entitlement per se was capital in nature; Duty credit entitlement should be reduced from cost of the capital assets to the extent utilized for payment of import duty ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 6 5. Without prejudice to the ground no. 2 to 4, should have appreciated that Duty credit entitlement which is given for utilization against custom duty on capital goods/ spares etc need to be adjusted against cost of that asset, as per explanation 10 to section 43(1) of the Act Duty credit entitlement is not taxable even as per section 41(1) of the Act 6. should have appreciated that Duty credit entitlement is not some benefit in respect of trading liability by way of remission or cessation of thereof and hence it is not even chargeable to tax as per section 41(1), the duty credit entitlement received is not taxable and hence the same should be treated as capital receipt: Treating duty credit entitlement as income from other sources 7. Without prejudice to ground no 2 to 4 erred in confirming that the income earned by the Appellant from the duty credit entitlement is of revenue in nature and taxable under the head income from other sources instead of business income, Income from duty credit entitlement is business income 8. Without prejudice to the above grounds, erred in not appreciating that the income of duty credit entitlement is generated from business of managing, developing and maintaining the container terminal dock and the same is ought to be assessable as business income under section 28(b) of the Act, 9. erred in not considering that income to the extent of duty credit utilized, for corresponding custom duty on import of spares etc, is shown as expenses in profit & loss account and is ultimately tax neutral and hence does not have any effect on the profit of the Appellant. Duty credit entitlement is eligible for deduction under section 80IA of the Act 10. Without prejudice to the grounds 1 to 9. erred in not appreciating that since the duty credit entitlement is having first degree nexus with the business of managing, developing and ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 7 maintaining the container terminal dock, it should be eligible for deduction under section 80IA of the Act; Other Income 11. erred in not allowing deduction under section 80IA of the Act on other income of Rs 3,27,000 earned by the Appellant: Capital receipt not taxable under Section 115JB of the Act even if the receipt is incorrectly credit to the Profit & Loss A/c 12. Without prejudice to the above grounds, erred in not appreciating that capital receipt in the form of duty credit entitlement though incorrectly credited to the Profit & Loss A/c, shall not be considered while computing book profits under Section 115JB of the Act since it is a capital receipt. 13. Should have appreciated that as per Accounting Standard-10, the duty credit should be reduced from the cost of assets and therefore to that extent, the amount of duty credit should have been reduced while computing the books profits as per section 115JB of the Act The Appellant craves to consider each of the above grounds of appeal without prejudice to each other and crave leave to add, alter, delete or modify all or any of the above grounds of appeal.” 11. We proceed to adjudicate the issues raised by the assessee ground wise. 12. Ground No. 1 to 5 are interconnected and are relating to Income from duty credit entitlement of ₹.9,80,23,000/- received under the served from India scheme (Duty credit entitlement) is capital receipt and not chargeable to tax. Ld. AR brought to our notice that similar ground i.e., whether Served from India Scheme has to be treated as “capital receipt” or “revenue receipt” has been considered by the Coordinate ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 8 Bench of the Tribunal in the case of Container Corporation of India Ltd., v. DCIT [2022] 100 ITR (Trib) 74 (Delhi) in which Coordinate Bench has held that amount of benefit under the SFIS is a capital receipt and goes to reduce cost of capital asset purchased and he brought to our notice Para Nos. 8 to 15. Copy of the order is placed on record. 13. On the other hand, the Ld. DR for the revenue contended that the said receipt was of revenue in nature and not capital. Further, the Ld. DR stated that the object and nature of the scheme has to be considered while deciding the said issue. The Ld. DR also contended that utilization of the incentive has not been established by the assessee and further distinguished the decision of the Coordinate Bench where in the present case the assessee has brought the impugned amount in the Profit and Loss Account. The Ld. DR submitted that if something is borne out of revenue the same has to be treated as revenue receipt and not capital receipt. Ld. DR relied on the order of the lower authorities. 14. Considered the rival submissions and material placed on record, we observed that similar issue was considered and adjudicated by the Coordinate Bench in the case of Container Corporation of India Ltd. v. DCIT (supra) and held that SFIS credit goes to reduce the cost of capital ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 9 goods purchased by the Assessee and the SFIS credit given to the assessee can be utilized only against purchase of capital goods and to set off a portion of excise duty and customs duty only and do not constitute taxable income of the assessee as per the Clause (xviii) to section 2(24) of the Income Tax Act 1961. While holding so the Coordinate Bench observed as under: - “8. The Assessee is in appeal against the disallowance of Rs. 10.80 crores as sustained, while the Revenue’s appeal pays for the entire eligible duty credit to be held as taxable income. 9. The revenue held that SFIS is only entitlement for Customs duty & Excise Duty on purchases. The fact is that purchases are not on revenue account in the case of entities such as the Assessee, and cannot be on revenue account in cases of eligible purchases under SFIS, since credit against Excise duty & Customs duty is only available under SFIS when capital goods are purchased. The Revenue erroneously held that the credit is not given for setting up of business or acquiring any capital assets. The Revenue authorities have erroneously assumed that only an entity setting up business needs to acquire capital assets. Given that SFIS gives a credit corresponding to 10% of foreign exchange reserves earned by a service business during the year which can only be availed by existing businesses. 10. The Revenue held that SFIS nowhere requires purchase of capital goods as mandatory requirement whereas the clause 3.12.6 of the SFIS specifically restricts duty credit scrips to usage for import of “'any capital goods including spared. Additional requirements at clause 3.12.7 as to non-transferability and actual user condition precludes purchases for trading purposes. The Central Excise tariff notification No.34/2006 dated 14.06.2006 also contains clear and specific restrictions as to credit being available only in respect of “Capital Goods” as defined in the Foreign Trade Policy. ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 10 11. SFIS is a credit receipt used for making payment of excise duty on domestic purchases. Scrips under SFIS are enticements which can be set off against excise duty while making purchase / import of capital goods. In no case has any amount been received by the Assessee under SFIS. All the purchases have been capitalized and hence new assets have come into existence. 12. The Assessee has not reckoned SFIS credit in its Profit & Loss account, since such credit for its nature as well as built-in conditions, could never have been an item on revenue account. Wherever it has made purchases of eligible capital goods however, it has corresponded with vendors as to availability of SFIS credit against Excise / Customs liability against the said purchases, obtained certificates from Excise / Customs authorities against provisional Invoices from vendors, and has purchased the said capital goods net of Excise / Customs duty, against SFIS credit. The capital goods as purchased have been brought into Assets at the net-of Excise / Customs value in the Balance Sheet. 13. Details of utilization of SFIS credit during the year are are examined. Documents in respect of 17 transactions of purchase, referencing the SFIS credit and its accounting are perused. The first 16 transactions are for purchase of rakes of 30 — 45 wagons, while last one is in respect of purchase of Slack less draw bar(SLDB), which is the joint between railway wagons. 14. Thus, the rake enters the Assessee’s business and the Assessee’s accounts as a fixed asset, and is capitalized at the cost of acquisition, i.e. Rs.9,79,49,291/-. All that the SFIS credit has done therefore, is to reduce the value of a capital asset brought into the books, by the amount of excise duty thereof. Had the SFIS credit not been included, the Assessee would have paid the duty and added the same to the asset cost while capitalizing the same. There is therefore no element of revenue or income in the SFIS credit, even from the point of view of the Assessee’s accounting. In each case, SFIS credit available through a specific certificate as furnished to each vendor has been utilized to make purchases of capital goods at net of Excise prices. Those capital assets have then been capitalized at the purchase value. Clearly therefore, SFIS credit is not in the nature of income. Thus it is clear that SFIS credit goes to reduce the cost of capital goods purchased by the Assessee and the SFIS credit given to the assessee can be utilized only against purchase of capital goods and to set off a portion of excise duty and customs duty only and do not constitute taxable income of the assessee as per the Clause (xviii) to section 2(24) of the Income tax Act 1961. ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 11 15. In the result, the appeal of the assessee is allowed and that of the Revenue is dismissed. 15. As could be seen from the above order of the Tribunal, the Coordinate Bench after elaborate discussion held that the amount of benefit under the SFIS is a capital receipt and goes to reduce cost of capital asset purchased. In case, it is not utilized, the SFIS will elapse. From the above decision, we observe that the assessee in the above case has rightly followed the accounting principle to book the transaction and they claimed the custom / excise duty through the SFIS and accounted only the cost of the capital assets in assets / depreciation schedule. 16. In the present case, the accounting method adopted by the assessee is, they claimed the SFIS as additional income and declared the same in the Profit and Loss and accounted the gross value of the capital assets in the depreciation schedule. We observe from the balance sheet and depreciation schedule that assessee has recorded the gross assets to the additions in the depreciation schedule to the extent of ₹.43,43,68,000/- (which includes Plant & Machinery, computer hardware and software. The above values include the custom / excise duty. ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 12 17. This can be explained with the example, let us say that the assessee purchases a “Plant and Machinery” of ₹.10,00,000/- and applicable customs duty @30%. As per the method of accounting, the assessee will record as under: - Cost of Plant and Machinery : ₹.10,00,000/- Customs duty : ₹.3,00,000/- Total Cost : ₹.13,00,000/- 18. In recording the above transactions, the company may have two ways of recording, First Method, the company will record only the basic cost and not consider the customs duty and subsidy. Whereas, in the Second Method, the company will record the total cost including the customs duty and also record the subsidy separately as an other income. The assessee in this case, chose to record the transaction as per second method. 19. We observe that as per Explanation 10 to the section 43(1) of the Act, “where a portion of the cost of an assets acquired by the assessee in the form of subsidy or grant or reimbursement (by whatever name 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 assets.” Therefore, in the given case, the assessee has recorded the SFIS benefit as the other income and included duty portion in the gross value of the ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 13 capital assets. The legislature consciously prohibits the assessee not to record the duty or subsidy portion in the cost of the assets, it will lead to claim of additional depreciation on the subsidy. This is called unjust enrichment. Therefore, we are inclined to direct the Assessing Officer to allow the subsidy or SFIS benefit to the assessee as the capital receipt. At the same time, we direct the Assessing Officer to collect the utilization of SFIS credit in the various capital assets acquired or procurement of spare parts by the assessee i.e., the custom / excise duty credit claimed by the assessee “assets wise” and direct him to reduce the respective value from the cost of the assets recorded in the depreciation schedule. Also recalculate the depreciation for the year. Accordingly, reassess the taxable income of the assessee. Accordingly, we allow the Ground Nos. 2, 3, 4, 6, 7 & 8 raised by the assessee as the SFIS is not a taxable income as held in the case of Container Corporation of India Ltd., (supra). 20. With regard to Ground No. 5 as discussed above this issue is remitted back to Assessing Officer to recalculate the depreciation. In our view, the assessee has claimed the credit of SFIS as an income, the corresponding debit will be the cost charged to the capital assets. ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 14 Therefore, the value of assets has to be readjusted. This ground of appeal is allowed for statistical purpose. 21. With regard to Ground No. 9, we observe that assessee has submitted that it has also purchased certain spare parts under this scheme, as discussed above, assessee has declared the SFIS credit as an income, then duty portion is included in the cost of the spare parts. Therefore, this ground also remitted back to Assessing Officer to verify the same. In case it is included in the spare parts, the same has to be reduced or disallowed. 22. With regard to Ground No. 10, as discussed above, the income claimed by the assessee in the books of account is not proper. Since it is a credit to be adjusted in the cost of the capital assets. It should not be treated as an income as disclosed by the assessee. Once, it is reduced from the capital assets, it will not be additional income or incentive, therefore there will not be much impact on the profit except depreciation impact and will not impact the claim u/s. 80IA of the Act. Therefore, this ground become infructuous. Accordingly, dismissed. 23. With regard to Ground No. 11 which is in respect of “Other income of ₹.3,27,468/- (erroneously rounded off in the grounds of appeal at ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 15 ₹.3,27,000/-) is eligible for benefit of deduction under section 80IA of the Act. Ld. AR of the assessee submitted that assessee is engaged in one single activity i.e. of running of a Port and it has no other operations otherwise than running of a Port and has no other income otherwise than from running of the Port. Ld. AR of the assessee brought to our notice Page Nos. 82 to 84 of the Paper Book which is the details of break-up of the amount and each of the items show that they are of an operational nature and have a direct nexus with Port operations / activities of the assessee and are entitled to the benefit of deduction under section 80IA of the Act. 24. On the other hand, Ld. DR relied on the order of the lower authorities. 25. Considered the rival submissions and material placed on record, it is brought to our notice that assessee has earned other miscellaneous income of ₹.3,27,468/- which are in the nature of duty credit entitlement, interest income, reversal of provision, small scarp sales. It is also submitted that assessee is engaged in one single activity i.e., running of a port. Therefore, assessee is not involved in any other activity other than running of port which is eligible for deduction ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 16 u/s.80-IA of the Act, any other income or expenditure incurred by the assessee only for running or maintenance of the port. Therefore, irrespective of various income declared in the business, any income generated out of this port is eligible for deduction u/s. 80-IA of the Act. Therefore, we direct the Assessing Officer to treat this miscellaneous income as part of the business carried on by the assessee. Accordingly, ground raised by the assessee is allowed. 26. With regard to Ground No. 12 to 13 which are in respect of Entitlement of ₹.9,80,23,000/- under SFIS ought to be reduced from computation of profit for the purposes of Section 115JB of the Act. Ld.AR of the assessee submitted that in view of the treatment of benefit under the SFIS are being a capital receipt, the amount of benefit will be excluded from the computation of book profit under section 115JB. Reliance is placed on the decision of ACIT v. Shree Pushkar Chemicals and Fertilizers Ltd. (2022) 192 ITD 618 (Mum) (Para 15). 27. On the other hand, Ld. DR relied on the order of the lower authorities. ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 17 28. Considered the rival submissions and material placed on record, as we have decided Ground No. 1 to 4 as treatment of benefit under the SFIS as being a capital receipt, hence, as held in the case of Pushkar Chemicals & Fertilizers Ltd., (supra), for the sake of clarity, it is reproduced below: - “15. Considered the rival submissions and perused the material on record in the light of the decisions relied upon by the parties. We notice that the learned Departmental Representative tried to submit before us that the subsidy given to the manufacturers under NBS Scheme was to give concession to the farmers and reduce the MRP in order to bring down the manufacturing cost. Whole scheme was designed to increase the fertilizer production and utilization among the farmers by making available at the affordable price to the farmers. Since it is linked to reduction of price in manufacturing, this subsidy can only be classified under revenue not capital. However, we notice that the purpose of introduction of NBS scheme and modification of various Govt. schemes over the period is due to the fact that (refer impact of concession scheme) the growth of fertilizer industry was stagnated with virtually no investments over the years in urea sector, this industry had no incentive to invest on modernization and for increasing efficiency. The industry had no incentive to focus on farmers leading to poor farm extension services. The policy was introduced to reduce the burden on subsidy outgo in the hands of the Government which increased exponentially over the years. This policy is introduced considering all the issues relating to agriculture productivity, balanced fertilization and growth of indigenous fertilizer industry, competitiveness among the fertilizer companies and to overcome the deficiency of concession scheme. Therefore, it is clear that this scheme is introduced with the object of passing the benefit to the farmers at the same time, there is no fresh investment and innovations were not coming to the industry due to low profitability in this industry. In order to attract the new investments, to increase the productivity and to reduce the manufacturing cost by bringing new innovation in the industry in order to achieve ultimate reduction in the price of the fertilizers. Therefore, the scheme was mainly to attract the investment in the industry and the purpose test is that the attraction of new players in the industry and also attracts the existing players to bring new investment. How the ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 18 benefit of scheme is passed on to the industry matters. Sometime, Govt. introduces direct concession in the investments or introduces mechanism in relation to the ultimate achievement of the objects of the scheme. In this scheme, the ultimate object is to make available the required fertilizers and at appropriate price to the farmers, this can be achieved only by bringing new investments in the industry. It is only the mechanism to pass on the capital subsidy to the companies, who bring in new investments and innovation. The subsidy calculated and MRP are under constant monitoring of the Ministry. Therefore, we are inclined to accept the adoption of purpose test by the learned CIT(A) in this case and the subsidy can be classified as capital in nature. In our considered opinion, a receipt that is held to be a capital in nature and not chargeable to tax under the normal provisions of the Act. Hence the same lies outside the purview of Act. When a receipt is not in the nature of income, it cannot form part of taxable profit. Consequently, in view of the aforesaid discussion as enumerated by the learned CIT(A) in detail, in our opinion, the order of the learned CIT(A) on the issue in dispute is well reasoned and we do not find any legal infirmity in the order passed by him which is hereby upheld. Thus, the ground of the appeal no.2, raised by the Revenue is also dismissed.” 29. As could be seen from the above that once a subsidy is categorized as a capital in nature and not chargeable to tax under the normal provision of the Act, the same lies outside the purview of the Act. Therefore, when the receipt is not in the nature of income, it cannot form part of taxable profit. In the present case, the issue is different, the assessee has declared the SFIS subsidy as an additional income without reducing the value of subsidy in the cost of the assets. When the same is being directed to be modified as directed to Assessing Officer the Assessing Officer will verify the same and make the changes in the depreciation schedule and reduce the subsidy from the income ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 19 declared by the assessee. When the same is reduced from the income, this income will no longer be an item of income in the Profit and Loss. As held in the above decision, the SFIS subsidy is capital in nature, it cannot form part of book profit. Since this issue is remitted to the file of the Assessing Officer, we remit this issue also to the file of Assessing Officer to determine the book profit u/s. 115JB of the Act as per the direction in Ground Nos. 2 to 4. Accordingly, this ground also allowed for statistical purpose. 30. In the result, appeal filed by the assessee is allowed for statistical purpose. ITA.NO. 893/MUM/2013 (A.Y. 2008-09) – REVENUE APPEAL 31. Revenue has raised following grounds in its appeal: “1. The order of the CIT(A) is opposed to law and facts of the case. 2. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in failing to appreciate that the Income from scrap sales is not eligible for deduction u/s 80IA as the income earned from scrap sales is not directly derived from undertaking and therefore the receipt from sale of scrap sales cannot be taken into consideration for deduction u/s 80IA”. 3. “For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored”. ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 20 32. At the time of hearing, Ld. DR submitted that Income from scrap sales is not eligible for deduction u/s 80IA as the income earned from scrap sales is not directly derived from undertaking and therefore the receipt from sale of scrap sales cannot be taken into consideration for deduction u/s 80IA of the Act. Ld.DR relied on the order of the Assessing Officer. 33. On the other hand, Ld. AR of the assessee brought to our notice Page No. 80 of the Paper Book and submitted that scrap sales are that of burnt oil, empty barrels, used filters, used spares etc. Ld. AR further submitted that Ld.CIT(A) has rightly relying on various decisions held that sale of scrap results directly from the process of the business and therefore has rightly held that scrap sales are eligible for benefit of deduction under section 80IA of the Act and he relied on the order of the Ld.CIT(A). 34. Considered the rival submissions and material placed on record. We observe from the record that Ld.CIT(A) considered this aspect of the matter and decided the issue in favour of the assessee, for the sake of clarity, it is reproduced below: - “10.1 The A.O. has also rejected the claim u/s. 80IA on scrap sale holding that it is not connected to the business of the assessee, ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 21 whereas, scrap results either during the manufacturing / construction process, out of the material or goods used or it is defective or unusable part of the material required for carrying out the business process or industrial activity, therefore, either it reduces the cost of material purchased or it adds to the sale/turnover of the assessee, but in any case it results from the process of business or industrial activity carried out by the assessee and, therefore, it is derived from the industrial undertaking. Hence, it is eligible for deduction u/s. 80IA, therefore, A.O. is directed to allow deduction u/s. 80IA on scrap sale of Rs.28,37,000/-.” 35. We observe that the list of scrap materials declared by the assessee shows that these are generated out of the maintenance of the Port. The scrap cannot be accumulated from outside, unless, the assesse has bought for the business. We noticed that the assessee is not in the business of scrap sales, therefore, it should have been generated out of the port maintenance. It is integral part of the business and should be part of business income and the deduction u/s 80IA cannot be denied. Accordingly, we observe that Ld.CIT(A) has considered this aspect and allowed the claim of the assessee as per law. Therefore, we do not see any reason to disturb the same. Accordingly, ground raised by the revenue is dismissed. 36. In the result, appeal filed by the revenue is dismissed. ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 22 ASSESSMENT YEAR 2009-10 ITA.NO. 1119/MUM/2013 (A.Y: 2009-10) – ASSESSEE APPEAL 37. Assessee has raised following grounds in its appeal: - “1. erred in upholding the addition of Rs 11,09,18,055 made by the AO to the total income of the Appellant, Income from Duty credit entitlement of Rs 11.03.15,000 received under the served from IndiaScheme ('duty credit entitlement') is capital receipt and not chargeable to tax: 2 erred in not appreciating the fact that receipt by way of duty credit entitlement is capital in nature and hence not liable to tax at all; 3. should have appreciated that the object of the scheme is to accelerate growth in export of services. so as to create a powerful and unique 'served from India' brand; 4. failed to appreciate that as per the scheme the duty credit entitlement could be utilized largely against the import of capital goods and spares in this regard and hence the nature of duty credit entitlement per se was capital in nature, Duty credit entitlement should be reduced from cost of the capital assets to the extent utilizedfor payment of import duty 5. Without prejudice to the ground no. 2 to 4, should have appreciated that Duty credit entitlement which is given for utilization against custom duty on capital goods/ spares etc need to be adjusted against cost of that asset, as per explanation 10 to section 43(1) of the Act; Duty credit entitlement is not taxable even as per section 41(1) of the Act 6 should have appreciated that Duty credit entitlement is not some benefit in respect of trading liability by way of remission or cessation of thereof and hence it is not even chargeable to tax as per section 41(1), the duty credit entitlement received is not taxable and hence the same should be treated as capital receipt ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 23 Treating duty credit entitlement as income from other sources 7. Without prejudice to ground no 2 to 4 erred in confirming that the income earned by the Appellant from the duty credit entitlement is of revenue in nature and taxable under the headincome from other sources instead of business income; Income from duty credit entitlement is business income 8. Without prejudice to the above grounds, erred in not appreciating that the income of duty credit entitlement is generated from business of managing, developing and maintaining the container terminal dock and the same is ought to be assessable as business income under section 28(b) of the Act: 9. erred in not considering that income to the extent of duty credit utilized, for corresponding custom duty on import of spares etc, is shown as expenses in profit & loss account and is ultimately taxneutral and hence does not have any effect on the profit of the Appellant Duty credit entitlement is eligible for deduction under section 80IA of the Act 10. without prejudice to the grounds 1 to 9, erred in not appreciating that since the duty creditentitlement is having first degree nexus with the business of managing developing andmaintaining the container terminal dock, it should be eligible for deduction under section 80IA ofthe Act. Other Income 11. erred in not allowing deduction under section 80IA of the Act on other income of Rs 6,03,055 earned by the Appellant. Capital receipt not taxable under Section 115.JB of the Act even if the receipt is incorrectly credit to the Profit & Loss A/c 12. Without prejudice to the above grounds, erred in not appreciating that capital receipt in the form of duty credit entitlement though incorrectly credited to the Profit & Loss A/c, shall not be considered while computing book profits under Section 115JB of the Act since it is a capital receipt, 13. Should have appreciated that as per Accounting Standard - 10, the duty credit should be reduced from the cost of assets and therefore to that extent, the amount of duty credit should have ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 24 been reduced while computing the books profits as per section 115JB of the Act The Appellant craves to consider each of the above grounds of appeal without prejudice to each other and crave leave to add, alter, delete or modify all or any of the above grounds of appeal.” 38. Both the counsels submitted that the facts relating to A.Y. 2008-09 are identical to the A.Y. 2009-10. Since facts and grounds of appeal raised by the assessee in this case are mutatis mutandis to the appeal filed by the assessee for the A.Y. 2008-09, therefore the decision taken in A.Y. 2008-09 is applicable to this assessment year also. Accordingly, this appeal is allowed. 39. In the result, appeal filed by the assessee is allowed for statistical purpose. ITA.NO. 894/MUM/2014 (A.Y: 2009-10) – REVENUE APPEAL 40. Revenue has raised following grounds in its appeal: - “1. The order of the CIT(A) is opposed to law and facts of the case. 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in failing to appreciate that the Income from scrap sales is not eligible for deduction u/s 80IA as the income earned from scrap sales is not directly derived from undertaking and therefore the receipt from sale of scrap sales cannot be taken into consideration for deduction u/s 80IA". ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 25 3. "For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored". 41. Both the counsels submitted that the facts relating to A.Y. 2008-09 are identical to the A.Y. 2009-10. Since facts and grounds of appeal raised by the revenue in this case are mutatis mutandis to the appeal filed by the revenue for the A.Y. 2008-09, therefore the decision taken in A.Y. 2008-09 is applicable to this assessment year also. Accordingly, this appeal is dismissed. 42. In the result, appeal filed by the Revenue is dismissed. 43. To sum-up, appeals filed by the assessee are allowed for statistical purpose and appeals filed by the revenue are dismissed. Order pronounced in the open court on 11 th August, 2023 Sd/- Sd/- (KAVITHA RAJAGOPAL) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 11/08/2023 Giridhar, Sr.PS ITA NOs. 893, 894, 1118 & 1119/MUM/2013 Chennai Container Terminal Pvt. Ltd Page No. 26 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum