The Bedi Exports International, Jalandhar city V. The Dy. Commissioner of Income Tax, Jalandhar city

ITA 94/ASR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9624 (ITAT-AMRITSAR)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 15-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SANKAR
• Assessee Lawyers: S K VATTA
• Keywords: Capital asset; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.94(ASR)/2016 ASSESSMENT YEAR: 2010-11 BEDI EXPORTS INTERNATIONAL 89-FOCAL POINT EXT. JALANDHAR CITY. PAN:AAAFB9263E VS. DY. CIT, RANGE II, CENTRAL REVENUE BUILDING JALANDHAR CITY. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. S.K. VATTA (CA) RESPONDENT BY: SH. BHAWANI SANKAR (DR) DATE OF HEARING: 16.06.2016 DATE OF PRONO UNCEMENT: 02.08.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE OR DER OF LEARNED CIT(A), JALANDHAR, DATED 5.11.2015 FOR ASST. YEAR: 2010-11. 2. THE ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL, H OWEVER, THE CRUX OF THE GRIEVANCE OF ASSESSEE IS THE ACTION OF LEARN ED CIT(A), BY WHICH HE HAD SUSTAINED AN ADDITION OF RS.4,00,000/-, WHICH T HE ASSESSING OFFICER HAD MADE BY TREATING THE SUBSIDY RECEIVED BY ASSESS EE AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT TREATED BY ASSES SEE. 3. AT THE OUTSET, THE LEARNED AR INVITED OUR ATTENT ION TO (PB PAGE-17) WHEREAS A PART OF INDUSTRIAL POLICY 1996 WAS PLACED . THE LEARNED AR SUBMITTED THAT THE SUBSIDY WAS RECEIVED IN VIEW OF THE POLICY FOR SETTING ITA NO.94 (ASR)/2016 ASST. YEA R: 2010-11 2 UP A NEW INDUSTRIAL UNIT AND THE OBJECTS OF INDUSTR IAL POLICY 1996 WAS INDUSTRIALIZATION. THE LEARNED AR SUBMITTED THAT TH E HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEELS & WORKS PVT. LTD & ORS . VS. CIT 228 ITR 253 HAS CLEARLY HELD THAT WHERE THE SUBSIDY IS GIVEN TO SET UP A BUSINESS OR COMPLETE A PROJECT THE MONEY RECEIVED M UST BE TREATED AS HAVING BEEN RECEIVED FOR CAPITAL PURPOSES. 4. THE LEARNED DR, ON THE OTHER HAND, HEAVILY PLACE D HIS RELIANCE ON THE ORDER OF AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GON E THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ASSESSEE RECEIVE D AN AMOUNT OF RS. 4,00,000/- BEING PART OF SUBSIDY WHICH WAS GIVEN TO ASSESSEE IN VIEW OF THE INDUSTRIAL POLICY 1996. THE OBJECTIVE OF THE SA ID POLICY AS CONTAINED IN INDUSTRIAL POLICY IS TO PROMOTE GROWTH OF INDUST RY IN THE STATE OF PUNJAB. THE SCHEME OF SUBSIDY AS OUTLINED IN PARA 6 OF THE POLICY WHICH IS REPRODUCED BELOW. 6. INCENTIVES TO SMALL SCALE INDUSTRIAL UNITS. 6.1 INVESTMENT INCENTIVE (CAPITAL SUBSIDY) A) ELIGIBILITY SUBJECT TO THE PROVISIONS OF RULE 5, THE INVESTMENT INCENTIVE ENTITLEMENT SHALL BE CALCULATED ON A SUM TOTAL OF T HE FOLLOWING ITEMS. I) LAND ACTUAL EXPENDITURE INCURRED ON THE PURCHASE OF LAND INCLUDING REGISTRATION CHARGES, LAND DEVELOPMENT CHARGES NOT EXCEEDING 10% OF THE COST OF LAND AND ENHANCED COMPENSATION, IF A NY. II) BUILDING ACTUAL EXPENDITURE ON BUILDING BUT EXCLUDING LABOUR QUARTERS. III) PLANT & MACHINERY ACTUAL COST OF PLANT & MACHINERY AS MENTIONED IN RU LE 2.8. IV) OTHER ITEMS. ITA NO.94 (ASR)/2016 ASST. YEA R: 2010-11 3 ACTUAL COST OF ITEMS MENTIONED IN RULE 2.7. THE TOTAL FIXED CAPITAL INVESTMENT FOR THIS PURPOSE SHALL ORDINARILY BE RESTRICTED TO THE PROJECT COST AS APPROVED BY THE F INANCIAL INSTITUTION/ SCHEDULED BANK. HOWEVER, ANY PORTION O F THIS PROJECT COST WHICH IS INCURRED EVEN AFTER THE COMMENCEMENT OF COMMERCIAL PRODUCTION SHALL BE TAKEN AS FCI PROVIDED THIS EXPE NDITURE IS JUSTIFIED & CERTIFIED BY THE FINANCIAL INSTITUTION/ SCHEDULED BANK. IN CASE OF SELF FINANCED UNITS AS DEFINED IN RULE 5.1, A CERTIFICATE OF EXPENDITURE FROM THE FINANCIAL INSTITUTION/BANK SHA LL BE OBTAINED. FURTHER, ANY EXPENDITURE OVER A ABOVE THE PROJECT C OST AS ORIGINALLY APPRAISED BY FINANCIAL INSTITUTION/BANK SHALL ALSO BE TAKEN AS FCI PROVIDED THIS ADDITIONAL COST HAS BEEN FINANCED & C ERTIFIED BY FINANCIAL INSTITUTIONS/BANK AND HAS BEEN INCURRED B EFORE THE COMMENCEMENT OF COMMERCIAL PRODUCTION. FROM THE ABOVE, WE FIND THAT THE SUBSIDY AMOUNT TO BE GIVEN TO AN ASSESSEE IS BASED UPON THE AMOUNT OF CAPITAL INVEST MENT IN LAND, BUILDING, PLANT AND MACHINERY AND OTHER ASSETS. WE FURTHER FIND THAT THE AMOUNT OF SUBSIDY IS TO BE CALCULATED ON THE AMOUNT SPENT ON FIXED ASSETS BEFORE THE COMMENCEMENT OF COMMERCIAL PRODUC TION. THEREFORE, THE PURPOSE OF THE SAID SUBSIDY IS TO PROMOTE NEW C APITAL INVESTMENT IN THE CAPITAL ASSETS OF UNITS. THE PURPOSE OF SAID SU BSIDY IS TO HELP THE INDUSTRY TO MAKE INVESTMENT AND IS NOWHERE RELATED TO HELP THE INDUSTRY IN CARRYING OUT OF ITS OPERATIONS. THE HONBLE SUPR EME COURT IN THE CASE OF SAHNEY STEEL & WORKS PVT. LTD. (SUPRA) HAS CLEAR LY DISTINGUISHED THE MONIES RECEIVED FOR CARRYING OUT BUSINESS OPERATION S AND THE MONEY RECEIVED FOR COMPLETION OR FOR SETTING UP A PROJECT . THE HONBLE SUPREME COURT HAS HELD THAT IF THE PURPOSE OF SUBSIDY IS TO HELP THE ASSESSEE TO SET UP A BUSINESS OR COMPLETE A PROJECT THE MONIES MUST BE TREATED AS HAVING BEEN RECEIVED FOR CAPITAL PURPOSES. THE RELE VANT FINDINGS OF THE HONBLE COURT AS REPRODUCED BY HONBLE GUJRAT HIGH COURT IN THE CASE OF ITA NO.94 (ASR)/2016 ASST. YEA R: 2010-11 4 JCIT VS COLOUMAN DYECHEM LIMITED (2015) 127 DTR 74 (GUJ) ARE REPRODUCED BELOW: IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (S UPRA), WHILE CONSIDERING THE SIMILAR QUESTION, THE HONORABLE SUPREME COURT H AS OBSERVED AND HELD THAT IF PAYMENTS IN NATURE OF SUBSIDY FROM PUBLIC F UNDS ARE MADE TO THE ASSESSEE TO ASSIST HIM IN CARRYING ON HIS TRADE OR BUSINESS, THEY ARE, THEREFORE, TRADE RECEIPTS. IT HAS OBSERVED THAT THE CHARACTER OF THE SUBSIDY IN HANDS OF THE RECIPIENT - WHETHER REVENUE OR CAPI TAL - WILL HAVE TO BE DETERMINED HAVING REGARD TO THE PURPOSE FOR WHICH T HE SUBSIDY IS GIVEN. IT HAS OBSERVED THAT SOURCE OF THE FUND IS QUITE IMMAT ERIAL. IT HAS FURTHER OBSERVED THAT, HOWEVER, IF THE PURPOSE IS TO HELP T HE ASSESSEE TO SET UP ITS BUSINESS OR COMPLETE A PROJECT, THE MONIES ARE MUST BE TREATED AS HAVING BEEN RECEIVED FOR CAPITAL PURPOSES. BUT IF MONIES A RE GIVEN TO THE ASSESSEE FOR ASSISTING HIM IN CARRYING OUT THE BUSINESS OPER ATIONS ARID THE MONEY IS GIVEN ONLY AFTER AND CONDITIONAL UPON COMMENCEMENT OF PRODUCTION, SUCH SUBSIDIES MUST BE TREATED AS ASSISTANCE FOR THE PUR POSE OF TRADE. IN THE CASE BEFORE THE HONORABLE SUPREME COURT, THE AMOUNT S OF SUBSIDY WERE GRANTED YEAR AFTER YEAR, ONLY AFTER SETTING UP OF T HE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION AND TO THAT, IT HAS OBSE RVED AND HELD THAT SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE AND THU S, THE SUBSIDIES WERE OF REVENUE NATURE AND WOULD HAVE TO BE TAXED ACCORD INGLY. WE HAVE ALREADY EXAMINED THE NATURE OF SUBSIDY RECE IVED BY ASSESSEE WHICH DEFINITELY IS A CAPITAL RECEIPT. THEREFORE, K EEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTANCES AND THE HONBLE SUPREME COU RT JUDGMENT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD.(SUPRA), WE HOLD THAT THE SUBSIDY RECEIVED DURING THE YEAR HAS TO BE TREATED AS CAPIT AL RECEIPT AND NOT REVENUE RECEIPT. 6. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02 .08.2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED:02.08.2016. /PK/ PS. ITA NO.94 (ASR)/2016 ASST. YEA R: 2010-11 5 COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER