Parag Milk Foods Pvt.Ltd, Pune V. Deputy Commissioner of Income tax, Pune

ITA 945/PUN/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6143 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 17-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition; Capital receipt; Rule 8D
• Section: 40A(3); 14A; 201; 143(2); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JM . / ITA NO . 797 /P U N/201 7 / ASSESSMENT YEAR : 20 1 2 - 1 3 DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1), PUNE ....... / APPELLANT / V/S. PARAG MILK FOODS PVT. LTD., AT POST MANCHAR, TAL AMBEGAON, DIST. PUNE PAN: AABCP0425G / RESPONDENT . / ITA NO .945/PUN/2017 / ASSESSMENT YEAR : 2012 - 13 PARAG MILK FOODS PVT. LTD., AT POST MANCHAR, TAL AMBEGAON, DIST. PUNE PAN: AABCP0425G ....... / APPELLANT / V/S. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1), PUNE / RESPONDENT ASSESSEE BY : S /S HRI CHETAN KARIA / SUHAS BORA / SANKET BORA REVENUE BY : SHRI S.B. PRASAD 2 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 / DATE OF HEARING : 05 - 0 8 - 2019 / DATE OF PRONOUNCEMENT : 20 - 0 9 - 2019 / ORDER PER VIKAS AWASTHY, JM : THESE CROSS APPEALS BY THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), PUNE - 11 , DATED 27 - 0 1 - 201 7 FOR THE ASSESSMENT YEAR 20 1 2 - 1 3 . 2. BRIEF FACTS OF THE CASE EMANATING FROM RECORDS ARE; THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN DAIRY PRODUCTS , MILK SUPPLIES AND MILK PRODUCTS LIKE GHEE, CHEESE, BUTTER, PANEER, SKIMMED MILK POWDER, ETC. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 28.09.2012 DECLARING TOTAL INCOME OF RS.12,74,20,068/ - . THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY. THE STATUTORY NOTICE U/S 143(2) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFER RED TO AS THE ACT), DATED 08.08.2013 WAS ISSUED AND DULY SERVED ON THE ASSESSEE. IN SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE ADDITIONS / DISALLOWANCES AS UNDER: - I) DISALLOWANCE U/S 14A OF THE ACT, RS.2,33,50,690/ - II) DISALLOWANCE U/S 40A(3) OF THE ACT, RS.64,300/ - III) ADDITION ON ACCOUNT OF SALES TAX BENEFIT RECEIVED UNDER PACKAGE SCHEME OF INCENTIVE, 2007 (HEREINAFTER REFERRED TO AS PSI, 2007 SCHEME), RS.13,34,90,536/ - . 3 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 AGGRIEVED AGAINST THE ASSESSMENT ORDER DATED 27.11.2015, T HE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE FIRST APPELLATE AUTHORITY AFTER CONSIDERING THE DOCUMENTS ON RECORD AND FACTS DELETED THE ENTIRE ADDITION ON ACCOUNT OF SALES TAX SUBSIDY RECEIVED UNDER THE PSI, 2007 SCHEME. AS REGARDS DISALLOWANCE UNDER S ECTION 14A OF THE ACT, THE CIT(A) RESTRICTED DISALLOWANCE UNDER RULE 8D(2)(III) OF THE INCOME - TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) TO RS.8,88,221/ - . AGAINST THESE FINDINGS OF FIRST APPELLATE AUTHORITY, BOTH THE REVENUE AND ASSESSEE ARE IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI CHETAN KARIA WITH SHRI SUHAS BORA APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS RECEIVED SALES TAX SUBSIDY FROM MAHARASHTRA SALES TAX DEPARTMENT UNDER THE PSI, 2007 SCHEME. THE CIT(A) HAS GRAN TED RELIEF TO THE ASSESSEE BY FOLLOWING THE ORDER OF TRIBUNAL IN THE CASE OF ROHIT EXHAUST SYSTEMS PVT. LTD. VS. ACIT IN ITA NO.1880/PN/2013, ASSESSMENT YEAR 2009 - 10, DECIDED ON 31.03.2015 AND THE SPECIAL BENCH DECISION OF TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES REPORTED AS 88 ITD 273 (MUM) (SB). THE LD. AR FURTHER CONTENDED THAT THE ISSUE WHETHER THE SUBSIDY RECEIVED UNDER THE PSI, 2007 SCHEME IS REVENUE OR CAPITAL RECEIPT HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE CASE OF INNOVENTIVE INDUSTRIES LTD. VS. DCIT IN ITA NO.601/PN/2013, ASSESSMENT YEAR 2009 - 10, DECIDED ON 24.03.2017. THE TRIBUNAL HELD THAT THE REFUND OF SALES TAX UNDER THE SAID SCHEME IS CAPITAL RECEIPT AND IS NOT LIABLE TO TAX. THE LD. AR SUBMITTED THAT THE ONLY ISSUE IN THE APPEAL OF RE VENUE IS WITH RESPECT TO FINDINGS OF CIT(A) ON SALES TAX SUBSIDY SCHEME. 4 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 3.1 THE CORRESPONDING GROUNDS RAISED BY ASSESSEE ARE GROUNDS NO.2 AND 3. THE CIT(A) WHILE GRANTING RELIEF TO THE ASSESSEE DIRECTED THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF SUBSIDY FROM THE COST OF ACQUISITION OF FIXED ASSETS. THE ASSESSEE IN APPEAL HAS ASSAILED LATER PART OF FINDINGS OF THE FIRST APPELLATE AUTHORITY, THE LD. AR SUBMITTED WRITTEN SUBMISSIONS ON THIS ISSUE. THE SAME ARE REPRODUCED HEREIN BELOW : - 2. GROUND N O. 2 AND 3: REGARDING DIRECTIONS OF CIT(A) TO REDUCE AMOUNT OF SUBSIDY FROM THE COST OF ACQUISITION / WDV OF FIXED ASSETS: 2.1 THE SALES TAX INCENTIVE RECEIVED BY THE ASSESSEE - COMPANY RELATES TO ITS UNIT FOR EXPANSION. 2.2 THE OVERALL LIMIT OF EXEMPTION IS LINKED AND IS FIXED TO CAPITAL INVESTMENT AS IT IS IN THE NATURE FOR SUBSIDY FOR SETTING UP OF NEW UNIT / EXPANSION OF EXISTING UNIT. 2.3 IN RESPECT TO THE ISSUE OF APPLICATION OF EXPLANTION - 10 TO SEC.43 (1) OF THE ACT WE SUBMIT THAT THE SCHE ME OF GOVT. OF MAHARASHTRA IS FOR THE ENCOURAGEMENT OF SETTING UP OF INDUSTRIAL PROJECT OR EXPANSION OF EXISTING INDUSTRIAL PROJECTS. 2.4 IT IS ALSO THE FACT THAT THE MAXIMUM LIMIT OF THE SUBSIDY WAS RESTRICTED WITH REFERENCE TO THE VALUE OF FIXED CAPITAL INVESTMENT IN LAND, BUILDING, PLANT & MACHINERY BUT NO PART OF THE SUBSIDY WAS SPECIFICALLY INTENDED TO SUBSIDIZED THE COST OF THE ANY FIXED ASSETS, THEREFORE, IT CANNOT BE SAID THAT SUBSIDY WAS TO MEET A PORTION OF COST OF ASSET. 2.5 THEREFORE, IT IS SU BMITTED BEFORE YOUR HONOUR THAT ASSESSEE HAS RIGHTLY NOT REDUCED THE AMOUNT OF SUBSIDY RECEIVED FROM THE ACTUAL COST/WDV OF THE FIXED ASSETS WHILE CLAIMING DEPRECIATION. EVEN HON'BLE SUPREME COURT IN THE CASE OF CIT VS P.J. CHEMICALS LTD. (210 ITR 830) HAS CONSIDERED THIS ISSUE AND HELD THAT WHERE GOVERNMENT SUBSIDY IS INTENDED AS AN INCENTIVE TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS AND ESTABLISH INDUSTRIES, THE SPECIFIED PERCENTAGE OF THE FIXED CAPITAL COST, WHICH 5 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 IS THE BASIS FOR DETERMINING THE SUBSIDY, BEING ONLY A MEASURE ADOPTED UNDER THE SCHEME TO QUANTIFY THE FINANCIAL AID, IS NOT A PAYMENT, DIRECTLY OR INDIRECTLY, TO MEET ANY PORTION OF THE ACTUAL COST. THEREFORE, THE SAID AMOUNT OF SUBSIDY CANNOT BE DEDUCTED FROM THE ACTUAL COST UNDER SEC. 43(1) FOR THE PURPOSE ALLOWING DEPRECIATION. IT IS FURTHER HELD THAT IF GOVERNMENT SUBSIDY IS AN INCENTIVE NOT FOR THE SPECIFIC PURPOSE OF MEETING A PORTION OF THE COST OF THE ASSETS, THOUGH QUANTIFIED AS A PERCENTAGE OF SUCH COST, IT DOES NOT PARTAKE THE CHARACTER OF PAYMENT INTENDED EITHER DIRECTLY OR INDIRECTLY TO MEET THE 'ACTUAL COST'. BY IMPLICATION, THE ABOVE JUDGMENT ALSO PROVIDES THAT IF THE SUBSIDY IS INTENDED FOR MEETING A PORTION OF THE COST OF THE ASSETS, THEN SUCH SUBSIDY SHOULD BE DEDUCT ED FROM THE ACTUAL COST, FOR THE PURPOSE OF COMPUTING DEPRECIATION. AS PER HON'BLE SUPREME COURT, LAW IS THAT IF THE SUBSIDY IS ASSET - SPECIFIC, SUCH SUBSIDY GOES TO REDUCE THE ACTUAL COST. IF THE SUBSIDY IS TO ENCOURAGE SETTING UP OF THE INDUSTRY, IT DOES NOT GO TO REDUCE THE ACTUAL COST, EVEN THOUGH THE AMOUNT OF SUBSIDY WAS QUANTIFIED ON THE PERCENTAGE OF THE TOTAL INVESTMENT MADE BY THE ASSESSEE. THE LAW IS ALREADY SETTLED ON THE SUBJECT. 2.6 EXPLANATION 10 PROVIDES THAT WHERE A PORTION OF THE COST OF A N ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CAL LED), 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 ASSET TO THE ASSESSEE. IT IS FURTHER, PROVIDED THERE UNDER, THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT 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 REIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSI DY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. 6 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 2.7 IN ORDER TO INVOKE EXPLANATION 10, IT IS NECESSARY TO SHOW THAT THE SUBSIDY WAS DIRECTLY OR INDIRECTLY USED FOR ACQUIRING AN ASSET. THE RELATABLE SUBSIDY TO SUCH ASSET CAN BE REDUCED FROM THE COST ONLY IF IT IS FOUND THAT THE COST FOR ACQUIRING THAT ASSET WAS DIRECTLY OR INDIRECTLY MET OUT OF THE SUBSIDY. LIKEWISE IN THE PROVISO, IT IS NECESSARY TO SHOW THAT THE SUBSIDY HAS BEEN DIRECTLY OR INDIRECTLY USED TO ACQUIRE AN ASSET BUT IT IS NOT POSSIBLE TO EXACTLY QUANTIFY THE AMOUNT DIRECTLY OR INDIRECTLY USED FOR ACQUIRING THE ASSET. 2.8 THE ABOVE EXPLANATION AND THE PROVISO THERETO DO NOT DILUTE THE FINDING OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS P. J. CHEMICALS LTD. (210 ITR 830) THAT ASSET - WISE SUBSIDY ALONE CAN BE REDUCED FROM THE ACTUAL COST. THE ABOVE EXPLANATION AND THE PROVISO THEREIN ATTEMPT TO EXPLAIN THE LAW. THEY ARE NOT BRINGING ANY NEW LAW DIFFERENT FROM THE LAW CONSIDERED BY THE HON'BLE SUPREME COURT IN THE ABOVE CASES. 2.9 IN SUPPORT OF ABOVE CONTENTION, WE HAVE RELIED UP ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF CIT VS. RELIANCE INDUSTRIES LTD, 339 ITR 632 (BOM HC) AND THE DECISION OF HON'BLE ITA T PUNE BENCH IN FOLLOWING CASES: 1. ROHIT EXHAUST SYSTEMS PVT. LTD VS ACIT, ITAT PUNE BENCH, ITA NO .1880/PN/2013 , ORDER DATED 3 1. 03.2015 2. INNOVATIVE INDUSTRIES LTD. VS DCIT, ITA NO.601/PUN/2013 ORDER DATED 24.03.2017 3. RASIKLAL M. DHARIWAL HUF VS DCIT, ITA NO.575/PUN/2007 4. M/S. SHRINIWAS ENGINEERING AUTO COMPONENTS PVT. LTD. VS PR. CIT , ITA NO.777/PUN/2018 ORDER DATED 28.02.2019. 2.10 WE ARE ALSO RELYING UPON FOLLOWING DECISIONS OF OTHER TRIBUNALS 1. BIR L A CORPORATION LTD VS DCIT, ITAT KOLKA TA BENCH, ITA NO .683/ K OL/2011, ORDER DATED 08.12.2014. 2. DCIT V. RASOI LTD. (2014) 46 TAXMANN.COM 3. M/S DAYAL STEEL LTD., VS ADDL. CIT, ITA NO.86/PAT/2014 ORDER DATED L3.04.2017 7 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 2.11 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND LEGAL POSITION EXPLAINED BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS P. J. CHEMICALS LTD. (210 ITR 830), WE SUBMIT THAT SUBSIDY RECEIPT SHOULD NOT BE REDUCED FROM THE ACTUAL COST OF FIXED ASSETS FOR COMPUTING DEPRECIATION UNDER THE PROVISIONS OF THE ACTS . 3 .2 IN RESPECT OF GROUND NO.1 OF THE APPEAL, THE LD. AR SUBMITTED THAT DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS RECEIVED EXEMPT INCOME ONLY TO THE EXTENT OF RS.2,000/ - . THE ASSESSING OFFICER MADE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2) OF THE RULES RS.2,33,50,690/ - . IN FIRST APPELLATE PROCEEDINGS, THE CIT(A) RESTRICTED THE DISALLOWANCE ONLY TO RULE 8D(2)(III) OF THE INCOME TAX RULES I.E. RS.8,88,221/ - . THE LD. AR SUBMITTED THAT ADMITTEDLY, THE ASSESSEE HAD NOT MADE ANY SUO - MOT O DISALLOWANCE IN EARNING EXEMPT INCOME OF RS.2,000/ - . SINCE OWN FUNDS OF ASSESSEE WERE MORE THAN THE FUNDS INVESTED, THE CIT(A) DELETED DISALLOWANCE OF INTEREST EX PENDITURE MADE UNDER RULE 8D(2)(II) BY THE ASSESSING OFFICER . THE LD. AR SUBMITTED THAT PUNE BENCH OF TRIBUNAL IN THE CASE OF RAJMAL LAKHICHAND JEWELLERS PVT. LTD. VS. DCIT IN ITA NO.672/PUN/2015 DECIDED ON 07.03.2018 HAS HELD THAT DISALLOWANCE U/S 14A OF THE ACT CANNOT EXCEED EXEMPT INCOME EARNED BY ASSESSEE. THEREFORE, DISALLOWANCE U/S 14A OF THE ACT BE RESTRICTED TO EXEMPT INCOME EARNED BY THE ASSESSEE DURING IMPUGNED ASSESSMENT YEAR. 4 . ON THE OTHER HAND , SHRI S.B. PRASAD REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE FINDINGS OF ASSESSING OFFICER IN MAKING ADDITION IN RESPECT OF SALES TAX REFUND RECEIVED BY THE ASSESSEE UNDER PSI, 2007 8 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 SCHEME. THE LD. DR SUPPORTING THE FINDINGS OF CIT(A) IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT READ W ITH RULE 8D OF THE RULES TO RS.8,88,221/ - PRAYED FOR DISMISSING THE APPEAL BY ASSESSEE. 5 . W E HAVE H EARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE ONLY ISSUE RAISED IN APPEAL BY THE REVENUE IS AGAINST FINDINGS OF CIT(A) IN HOLDING SUBSIDY RECEIVED BY ASSESSEE UNDER THE PSI, 2007 SCHEME A S CAPITAL RECEIPT . THE TRIBUNAL IN THE CASE OF INNOVENTIVE INDUSTRIES LTD. VS. DCIT (SUPRA) AFTER CONSIDERING THE SCHEME AND VARIOUS DECISIONS ON TH IS ISSUE CONCLUDED THAT INCENTIVE RECEIVED BY ASSESSEE UNDER THE PSI, 2007 SCHEME IN THE FORM OF REFUND OF SALES TAX IS CAPITAL RECEIPT NOT LIABLE TO TAX. FOR THE SAKE OF BREVITY, WE ARE NOT REPRODUCING THE FINDINGS OF CO - ORDINATE BENCH OF TRIBUNAL. SIMI LAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF ROHIT EXHAUST SYSTEMS PVT. LTD. VS. ACIT (SUPRA). THE FIRST APPELLA TE AUTHORITY HAS HELD SALES TAX SUBSIDY RECEIVED BY ASSESSEE AS CAPITAL RECEIPT BY PLACING RELIANCE ON THE DECISIONS OF TRIBUNAL. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISIONS REFERRED ABOVE, WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF CIT(A) IN HOLDING SALES TAX SUBSIDY RECEIVED BY ASSESSEE UNDER PSI, 2007 SCHEME AS CAPITAL RECEIPT. THE FINDINGS OF CIT(A) ON THIS ISSUE ARE UPHELD AND APPEAL OF REVENUE IS DISMISSED BEING DEVOID OF MERIT. 6. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. 9 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 ITA NO.945/PUN/2017 (ASSESSEES APPEAL) 7 . THE FIRST GROUND RAISED IN THE APPEAL BY ASSESSEE IS AGAINST DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE RULES. THE CONTENTION OF ASSESSEE IS THAT DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS RECEIVED EXEMPT INCOME OF RS.2,000/ - ONLY. THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF RAJMAL LAKHICHAND JEWELLERS PVT. LTD. VS. DCIT (SUPRA) HAS HELD THAT DISALLOWANCE U/S 14A OF THE ACT IS TO BE RESTRICTED TO EXEMPT INCOME EARNED. ADMITTEDLY, THE ASSESSEE HAS NOT MADE ANY SUO - MOT O DISALLOWANCE U/S 14A OF THE ACT. THUS, IN THE FACTS OF THE CASE AND IN THE LIGHT OF DECISION OF TRIBUNAL, DISALLOWANCE U/S 14A OF THE ACT IS RESTRICTED TO EXEMPT INCOME EARNED DURING THE RELEVANT PERIOD. THE GROUND NO.1 OF THE APPEAL IS THUS PARTLY ALLO WED , IN THE TERMS AFORESAID. 8 . THE GROUND NO.2 AND 3 OF THE APPEAL BY ASSESSEE ARE DIRECTED AGAINST THE FINDINGS OF CIT(A) IN REDUCING THE VALUE OF SUBSIDY FROM WRITTEN DOWN VALUE (HEREINAFTER REFERRED TO AS WDV) OF FIXED ASSETS. THE ASSESSEE HAS PLACED HEAVY RELIANCE ON THE DECISION RENDERED BY HONLE APEX COURT IN THE CASE OF CIT VS P.J. CHEMICALS LTD. (SUPRA). THE HONBLE SUPREME COURT OF INDIA IN THE SAID CASE HAD HELD THAT SUBSIDY RECEIVED BY ASSESSEE SHOULD NOT BE DEDUCTED FROM ACTUAL COST OF ASSET S FOR THE PURPOSE OF COMPUTING DEPRECIATION. THE AFORESAID JUDGMENT WAS RENDERED IN SEPTEMBER, 1994. THEREAFTER, IN THE YEAR 1999, EXPLANATION 10 TO SECTION 43(1) WAS INSERTED W.E.F. 01.04.1999. THE SAME IS REPRODUCED HEREIN BELOW: 10 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 EXPLANATION 10. WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REI MBURSEMENT (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 ASSET TO THE ASSESSEE : PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT 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 REIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH T HE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. 9. THE CIT(A) IN THE IMPUGNED ORDER HAS ANALYZED THE PURPOSE OF SUBSIDY UNDER PSI 2007. THE CIT(A) CONCLUDED THAT THE INCENTIVE P ROVIDED UNDER THE SCHEME IS DIRECTLY LINKED TO ACQUISITION OF FIXED ASSETS. THE ASSESSEE HAS NOT PLACED ON RECORD ANY DOCUMENT TO SHOW THAT THE SUBSIDY WAS NOT FOR ACQUIRING CAPITAL ASSET. IT IS NOT EMANATING FROM DOCUMENTS BEFORE US AS TO HOW SUBSIDY IS REFLECTED IN THE BOOKS OF THE ASSESSEE. 10. THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF INNOVENTIVE INDUSTRIES LTD. VS. DCIT (SUPRA) HAS ANALYZED THE PURPOSE OF PSI 2007 SCHEME. THE OBSERVATIONS OF THE TRIBUNAL ON THE PREAMBLE OF THE SCHEME ARE AS UNDER : 19. A BARE PERUSAL OF THE PREAMBLE TO PSI, 2007 SHOWS THAT THE INCENTIVES ARE OFFERED BY THE STATE GOVERNMENT TO THE ENTREPRENEURS FOR MAKING INVESTMENT AND SETTING UP OF NEW INDUSTRIES IN THE LESSER DEVELOPED AREAS OF THE STATE OF MAHARASHTRA. THE SCHEME ENVISAGES GRANT OF FISCAL INCENTIVES TO ACHIEVE HIGHER AND SUSTAINABLE ECONOMIC GROWTH WITH EMPHASIS ON BALANCED REGIONAL DEVELOPMENT AND EMPLOYMENT GENERATION THROUGH GREATER PRIVATE AND PUBLIC INVESTMENT IN INDUSTRIAL DEVELOPMENT. IN OTHER WO RDS, THROUGH THIS SCHEME THE STATE GOVERNMENT INTENDS TO ATTRACT INVESTMENTS IN THOSE AREA WHICH ARE LESS DEVELOPED SO AS TO CREATE A BALANCED DEVELOPMENT IN THE STATE AND GENERATE EVEN EMPLOYMENT OPPORTUNITIES THROUGHOUT THE STATE. THUS THE PRIME MOTIVE B EHIND PSI, 2007 IS SETTING UP OF NEW INDUSTRIES. 20. A PERUSAL OF THE TERMS AND CONDITIONS OF THE MEMORANDUM OF UNDERSTANDING REVEAL THAT THE INCENTIVE/BENEFITS UNDER THE SCHEME ARE OFFERED TO THE ASSESSEE SUBJECT TO THE COMPLIANCE OF CERTAIN CONDITIONS. THE BENEFITS ARE IN THE FORM OF EXEMPTION FROM PAY MENT OF ELECTRICITY DUTY, 100% EXEMPTION FROM PAYMENT OF STAMP DUTY ON PURCHASE OF LAND ETC., THE 11 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 INDUSTRIAL PROMOTION SUBSIDY IS GIVEN TO THE EXTENT OF 75% OF ELIGIBLE INVESTMENT MADE DURING PRESCRIBED PERIOD (LIMIT OF 75% OF THE ELIGIBLE INVESTMENT SHALL BE REDUCED BY THE AMOUNT OF BENEFITS OFFERED IN THE FORM OF ELECTRICITY DUTY AND EXEMPTION OF STAMP DUTY) OR TO THE EXTENT OF TAXES PAID TO THE STATE GOVERNMENT WITHIN A PERIOD OF 7 YEARS, WHICHEVER IS LOWER. A CLOSE PERUSAL OF THE ABOVE CONDITION WOULD MAKE IT UNAMBIGUOUSLY CLEAR THAT IT IS NOT THE CHOICE OF THE BENEFICIARY UNDER THE SCHEME TO SELECT THE MODE OF SUBSIDY. THE BENEFICIARY IS ENTITLED TO SUBSIDY SUBJECT TO THE LIMIT OF 75% OF ELIGIBLE INVESTMENTS AS REDUCED BY THE AMOUNT OF BENEFITS AVAILE D ON ACCOUNT OF ELECTRICITY DUTY AND STAMP DUTY EXEMPTION OR THE TAXES PAID TO THE STATE GOVERNMENT WITHIN A PERIOD OF 7 YEARS, WHICHEVER IS LOWER. IN THE PRESENT CASE, THE ASSESSEE HAS RECEIVED INDUSTRIAL PROMOTION SUBSIDY IN THE FORM OF REFUND OF SALES T AX PAID TO THE STATE GOVERNMENT. THE LATTER MODE OF PAYMENT OF INDUSTRIAL PROMOTION SUBSIDY IS POSSIBLE ONLY WHEN THE BENEFICIARY UNDER THE SCHEME HAS COMMENCED PRODUCTION AND ITS PRODUCTS ARE AVAILABLE IN THE MARKET FOR SALE. UNTIL AND UNLESS THE PRODUCTI ON STARTS AND THE PRODUCTS ARE SOLD IN THE MARKET, THERE CANNOT BE REFUND OF SALES TAX. IN THE BACKGROUND OF THE ABOVE NARRATED FACTS, IT WOULD BE WRONG TO CONCLUDE THAT SINCE THE ASSESSEE HAS RECEIVED SUBSIDY AS REFUND OF SALES TAX, THEREFORE, IT IS A TRA DE RECEIPT. THE ASSESSEE HAS RECEIVED SUBSIDY IN THE FORM OF REFUND OF SALES TAX FOR SETTING UP OF MEGA PROJECT IN CLASSIFIED AREA C OF THE STATE OF MAHARASHTRA AND UPON PROVIDING EMPLOYMENT TO MORE THAN 500 PERSONS, AS SPECIFIED UNDER THE SCHEME. THE TRIBUNAL AFTER EXAMINING THE SCHEME AND CONSIDERING VARIOUS DECISIONS CONCLUDED THAT INCENTIVE RECEIVED UNDER PSI 2007 SCHEME IN THE FORM OF REFUND OF SALES TAX IS CAPITAL RECEIPT. IN THE AFORESAID CASE, THE QUESTION WHETHER THE AMOUNT OF SUBSIDY IS TO BE REDUCED FROM COST OF ASSET OR NOT WAS NOT BEFORE THE TRIBUNAL. 11. THE ASSESSING OFFICER IN ASSESSMENT PROCEEDINGS HAS REJECTED ASSESSEES CLAIM OF TREATING SUBSIDY AS CAPITAL RECEIPT AT THRESHOLD ITSELF. THUS, THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE FROM THE PERSPECTIVE PURPOSE OF SUBSIDY AND ITS UTILIZATION. THE CIT(A) IN THE IMPUGNED ORDER HAS NOT SPECIFIED AS TO HOW THE ASSESSEE HAS REFLECTED THE AMOUNT OF SUBSIDY IN ITS BOOKS. SINCE, FACTS ARE NOT EMERGING FROM THE ORDERS OF AUTHORITIES BELOW, WE DEEM IT APPROPRIATE TO RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DE NOVO ADJUDICATION AFTER AFFORDING 12 ITA NO .797/PUN/2017 ITA NO.945/PUN/2017 A.Y. 2012 - 13 REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. THE GROUND NO.2 AND 3 OF THE APPEAL BY ASSESSEE ARE THUS, ALLOWED FOR STATISTICAL PURPOSE. 12. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 13. TO SUM UP, THE APPEAL BY REVENUE IS DISMISSED AND THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON FRIDAY , THE 20 TH DAY OF SEPTEMBER , 2019 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 20 TH SEPTEMBER , 2019 GCVSR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) , PUNE - 11 . 4. THE PR. CIT (CENTRAL), PUNE . 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE