DCIT, Chandigarh V. M/s Gain Residency Pvt. Ltd., Chandigarh

ITA 976/CHANDI/2011

• Counselvise Citation: 97621514 RSA 2011
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 976/CHD/2011 ASSESSMENT YEAR: 2008-09 DCIT, CIRCLE 1(1), V M/S GAIN RESIDENCY PVT. LTD., CHANDIGARH. SCO 9-A, SECTOR 7-C, CHANDIGARH. PAN: AABCG-9585-E (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. JAISHREE SHARMA RESPONDENT : SHRI SURINDER MAHAJAN DATE OF HEARING : 05.06.2012 DATE OF PRONOUNCEMENT : 12.07.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 25.07.2011 PASSED BY THE LD . CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'TH E ACT'). 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITIO N MADE BY THE A.O. OF RS. 7,31,737/- ON ACCOUNT OF RENTAL INCOME. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION M ADE BY THE A.O. ON THE ISSUE OF TREATING THE SUBSIDY, RECEIVABLE AT RS. 30,00,000/- AS REVENUE RECEIPT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. 2 CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION M ADE BY THE A.O RS. 6,65,511/- ON ACCOUNT OF CAPITALIZATION OF WATER AN D ELECTRICITY EXPENSES AS THE BUSINESS OF THE ASSESSEE WAS COMMEN CED AFTER 01.10.2007 AND THEREFORE THE EXPENSES INCURRED AFTE R 01.10.2007 ARE ALLOWABLE. THE REST OF THE EXPENSES AMOUNTING T O RS. 6,65,511/- (RS. 7,24,860-59,349) WERE TO BE CAPITALIZED 4. THE APPELLANT CRAVES TO ADD OR AMEND ANY GROUND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD OR DISPOSED OFF. 5. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 3. IN GROUND NO.1, REVENUE CONTENDED THAT CIT(A) ER RED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW I N DELETING THE ADDITION OF RS.7,31,737/-, MADE BY THE AO, ON ACCOUNT OF RENTAL INCOME. 3(I). LD. 'DR' PLACED RELIANCE ON THE ORDER PASSE D BY THE AO AND REFERRED TO PARA 3.3 OF THE APPELLATE ORDER PASSED BY THE CIT(A) AND PAPER BOOK PAGE NO.33, EVIDENCING RE NT AGREEMENT. LD. 'DR' PRAYED THAT THE ORDER PASSED B Y THE CIT(A) IS FACTUALLY AND LEGALLY INCORRECT. 3(II). LD. 'AR', ON THE OTHER HAND, PLACED RELIAN CE ON THE ORDER PASSED BY THE CIT(A). LD. 'AR' CONTENDED THAT THE AGREEMENT WAS NOT RENEWED AND ANNUAL REAL INCOME CA N BE CHARGED TO TAX. 4. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS, FACTS OF THE CASE AND THE RELEVANT RECORD. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO, T HAT THE ASSESSEE RECEIVED RENTAL INCOME FROM LETTING OUT PL OT NO. 694, INDUSTRIAL AREA, PHASE-I, CHANDIGARH. THE ASS ESSEE 3 HAD LET OUT 1/3 RD OF THIS PREMISES TO M/S SIDHARTH AGENCIES AND 2/3 RD OF THE PREMISES TO M/S GIAN CHAND ASHOK KUMAR. THE ASSESSEE RECEIVED A RENT OF RS.27,500/- P.M. AS RENTAL INCOME FROM M/S SIDHARTH AGENCIES AND RS.38,500/- P .M. AS RENTAL INCOME FROM M/S GIAN CHAND ASHOK KUMAR. 4(I). THE AO, REFERRED TO PARA 3 OF THE RENT AGRE EMENT DATED 15.07.2001 WHEREBY IT IS RECORDED THAT THERE WILL BE 10% INCREASE IN THE RENT EVERY YEAR ON THE LAST REN T PAID AND THIS INCREASE WILL CONTINUE TILL THE TENANT WIL L REMAIN IN POSSESSION OF THE SAID PREMISES. INVOKING THE TERMS OF THE SAID CLAUSE OF THE SAID RENT AGREEMENT, THE AO, WOR KED OUT THE RENT IN PARA 3.4 TO 3.11 OF THE ASSESSMENT ORDE R, WHICH IS REPRODUCED HEREUNDER : 3.4 ON THE BASIS OF THE RENT AGREEMENT, FROM 1 ST JULY, 2006 ONWARDS, THE RENT RECEIVABLE SHOULD HAVE BENE RS. 64,420.40 P.M. AND FROM 1 ST JULY, 2007 ONWARDS, IT SHOULD HAVE BEN RS. 70,862.4 P.M. HOWEV ER, IN THE RETURN OF INCOME, THE ASSESSEE HAS ONLY SHOWN RENT @ 38,5007- P.M. THE ACTUAL RENT RECEIVABLE AS PER THE RENT AGREEMENT FOR THE YEAR U NDER CONSIDERATION IS WORKED OUT AS BELOW :- RENT FOR 3 MONTHS FROM 1 ST APRIL, 2007 TO 30.6.2007 = RS. 64,420.4 X 3 RS. 1,93,261 RENT FOR 9 MONTHS FROM 30.6.2007 TO 31.3.2008 = RS. 70,862.4 X 9 3.5 IT IS WORTHWHILE TO MENTION HERE THAT M/S GIAN CHAN D ASHOK KUMAR IS AN ASSOCIATE / RELATED CONCERN OF THE ASSESSEE COMP ANY. THE TOTAL AMOUNT OF RENT RECEIVABLE FROM M/S GIAN CHAND ASHOK KUMAR THU S SHOULD HAVE BEEN 8,31,023/- FOR THE LET OUT PROPERTY. HOWEVER, THE A SSESSEE HAS SHOWN RENTAL INCOME @ RS. 38,500/- P.M. AND FOR THE ENTIRE YEAR UNDER CONSIDERATION, THE RENTAL INCOME SHOWN BY THE ASSESSEE IN THE RETURN O F INCOME IS AMOUNTING TO RS. 4,62,000/- ONLY. THUS, THE DIFFERENCE AMOUNTIN G TO RS. 3,69,023/- (RS. 8,31,023/- - RS. 4,62,000/-) IS ADDED BACK UNDER TH E HEAD INCOME FROM 4 HOUSE PROPERTY. 3.6 SIMILARLY, THE ASSESSEE HAS LET OUT THE PROPERTY SC O 9A, MADHYA MARG, SECTOR 7, CHANDIGARH. THE ASSESSEE HAS SHOWN RENTAL INCOME OF RS. 55,000/- P.M. ON ACCOUNT OF LETTING OUT OF A PART O F THIS PROPERTY TO M/S GIAN CHAND ASHOK KUMAR. DURING THE COURSE OF THE ASSTT P ROCEEDINGS, THE ASSESSEE COMPANY HAS FILED A COPY OF THE RENT AGREE MENT DATED 7.12.2003. THE AGREEMENT IS EFFECTIVE FROM 12.12.2003 AND MONT HLY RENT FOR THIS PROPERTY IS RS. 48,,000/-. AS PER THE AGREEMENT, THERE HAS TO BE 10% INCREASE EVERY YEAR. 3.7 THUS ACCORDING TO THE RENT AGREEMENT, IF THE FIGURE OF 10% INCREASE IS USED, THE RENT RECEIVABLE FROM 7.12.2006 ONWARDS SH OULD HAVE BEEN RS. 63,888/- P.M. SIMILARLY, THE RENT RECEIVABLE FROM 7 TH DECEMBER, 2007ONWARDS SHOULD HAVE BEEN RS. 70,2777- AS PER TH E RENT AGREEMENT. HOWEVER, THE ASSESSEE IS ONLY SHOWING RENTAL INCOME OF RS. 55,000/- P.M. IN THE RETURN OF INCOME. 3.8 THE RENTAL INCOME WHICH THE ASSESSEE SHOULD HAVE RE CEIVED ON THE BASIS OF THE RENT AGREEMENT FROM LETTING OUT OF THI S PROPERTY TO M/S GIAN CHAND ASHOK KUMAR, IS WORKED OUT AS BELOW :- RENT FOR 7 MONTHS FROM 1 ST APRIL, 2007 TO 7.12.2007 = RS. 63,888 X 7 RS. 4,47,216/- RENT FOR 5 MONTHS FROM 8.12.2007 TO 31.3.2008 RS. 7 0,277 X 5 RS. 3,51,385/- 3.9 THE TOTAL AMOUNT OF RENT RECEIVABLE FROM M/S GIAN C HAND ASHOK KUMAR THUS SHOULD HAVE BEEN RS.7,98,601/- (RS.4,47, 216/- + RS. 3,51,385/-) FOR THE LET OUT PROPERTY. HOWEVER, THE ASSESSEE HA S SHOWN RENTAL INCOME @ RS. 55,000/- P.M. IN THE RETURN OF INCOME AND FOR T HE ENTIRE YEAR, THE RENTAL INCOME SHOWN BY THE ASSESSEE IS AMOUNTING TO RS. 6, 60,000/-. THUS, AN AMOUNT OF RS. 1,38,601/- (RS. 7,98,601/- - RS. 6,60 ,000/-) IS ADDED BACK UNDER THE HEAD HOUSE PROPERTY ON THIS ACCOUNT. 3.10 SIMILARLY, THE OTHER PORTION OF THE PROPERTY SCO 9A , MADHYA MARG, SECTOR 7, CHANDIGARH HAS ALSO BEEN RENT OUT @ 55,00 07- P.M. TO M/S SIDHARTH AGENCIES. FOLLOWING THE SAME LOGIC AND DISCUSSION, AS NARRATED ABOVE, AN AMOUNT OF RS. 1,38,601/- IS ADDED BACK UNDER THE HE AD HOUSE PROPERTY. 5 3.11 THE TOTAL ADDITION WORKED OUT IN THE EARLIER PARAGR APHS THUS COMES OUT TO RS. 7,31,737/- (RS. 85,512/- + RS. 3,69,023/- + RS. 1,38,601/- + RS.1,38,601/-). THUS, AN AMOUNT OF RS.7,31,737/- IS ADDED BACK UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 4(II). LD. CIT(A), DELETED THE IMPUGNED ADDITION . THE CIT(A) MENTIONED THAT IT IS CORRECT THAT THERE WAS A CLAUSE IN THE RENT AGREEMENT THAT RENT WAS TO BE INCREASED BY 10% EVERY YEAR ON THE LAST RENT PAID. THE CIT(A) REFER RED TO PROVISIONS OF SECTION 23(1) OF THE ACT AND OBSERVED THAT ONLY THE ACTUAL RENT RECEIVED IS TO BE TAXED, UNLESS IT IS LESS THAN THE ANNUAL LETTABLE AS PER SECTION 23(1)(A)(B) OF T HE ACT AND ACCORDINGLY, LD. CIT(A), HELD THAT THE DEPARTMENT H AS FAILED TO PROVE THAT THE ACTUAL RENT RECEIVED IN RESPECT O F TWO PROPERTIES, WAS LESS THAN THE ANNUAL LETTABLE VALUE , AS PER PROVISIONS OF SECTION 23(1)(A)(B) OF THE ACT. 4(III) THE PROVISIONS OF SECTION 23(1)(A) & (B) A RE REPRODUCED HEREUNDER : 23( 1) FOR THE PURPOSES OF SECTION 22, THE ANNUAL VALUE OF ANY PROPERTY SHALL BE DEEMED TO BE (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABL Y BE EXPECTED TO LET FROM YEAR TO YEAR; OR (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE 20 BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF TH E SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIV ED OR RECEIVABLE; OR (C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWIN G TO SUCH VACANCY THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE. 4(IV) A BARE PERUSAL OF THE PROVISIONS REVEALS TH AT AS PER THE AGREEMENT, UNDER REFERENCE, ACTUAL RENT RECEIVA BLE IS TO BE ASCERTAINED WITH REFERENCE TO THE RELEVANT CLAUS E OF THE RENT AGREEMENT, AS RELIED UPON BY THE AO. THE CIT( A) HAS NOT DISPUTED THE CORRECTNESS OF THE SAID CLAUSE. I T IS FURTHER 6 UNDISPUTED THAT THE SAID AGREEMENT HAS BEEN ENTERED BY THE CONCERNED PARTY AT WILL AND VOLUNTARILY. THEREFORE, THERE IS NO STATUTORY BAR U/S 23(1) OF THE ACT, TO EXCLUDE T HE SAID EXPRESS TERMS, FOR THE PURPOSE OF ENHANCEMENT OF RE NT IN THE SAID RENT AGREEMENT. THUS, HAVING REGARD TO FACTUA L MATRIX OF THE CASE, DOCUMENTARY EVIDENCE IN THE FORM OF RE NT AGREEMENT CANNOT BE IGNORED AND, HENCE, THE FINDING S OF THE LD. CIT(A) ARE REVERSED AND FINDINGS OF THE AO ARE RESTORED. THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED. 5. IN GROUND NO.2, REVENUE CONTENDED THAT CIT(A), E RRED IN DELETING THE ADDITION MADE BY THE AO IN RESPECT OF THE SUBSIDY RECEIVABLE AT RS.30,00,000/-, AS REVENUE RE CEIPT. LD. 'DR' SUPPORTED THE FINDINGS OF THE AO, BASED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT, IN THE C ASE OF M/S ABHISHEK INDUSTRIES 286 ITR 1 (P&H). 5(II) LD. 'AR', ON THE OTHER HAND, REFERRED TO VARI OUS CLAUSES OF THE SCHEME OF SUBSIDY AND CONTENDED THAT THE IMP UGNED SUBSIDY IS CAPITAL INVESTMENT SUBSIDY, @ 15% OF THE INVESTMENT MADE BY THE ASSESSEE IN FIXED ASSETS, SU BJECT TO SEALING OF RS.30 LACS. LD. 'AR' REFERRED TO THE OF FICE MEMORANDUM OF THE GOVT. OF INDIA DATED 07.01.2003, WHEREBY IN PARA 3.1 SUB-CLAUSE (II), IT IS MENTIONE D, ALL NEW INDUSTRIES IN THE NOTIFIED LOCATIONS WOULD BE ELIGI BLE FOR CAPITAL INVESTMENT SUBSIDY @ THEIR INVESTMENT IN PL ANT & MACHINERY SUBJECT TO SEALING OF RS.30 LACS. THE EX ISTING UNITS WILL ALSO BE ENTITLED TO THIS SUBSIDY ON THEIR SUBS TANTIAL EXPANSION, AS DEFINED. 7 6. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS, FACTS OF THE CASE AND THE RELEVANT RECORD. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO, SOUGHT EXPLANATION OF THE ASSESSEE REGARDING THE SUBSIDY RECEIVABLE AMOUNTING TO RS.30 LACS. THE ASSESSEE, VIDE LETTER DATED 29.11. 2010 SUBMITTED AS UNDER : BIFURCATED DETAIL OF ADDITIONS MADE TO FIXED ASSET S ALONG WITH COPIES OF LEDGER ACCOUNTS OF SUCH ASSETS ARE ENCLOS ED HEREWITH FOR YOUR KIND CONSIDERATION. IT IS RESPECTFULLY SUB MITTED THAT NONE OF THE FIXED ASSETS HAS BEEN SOLD DURING THE PERIOD UNDER CONSIDERATION. THE FIGURES APPEARING IN THE SALE/TR ANSFER COLUMN IS THE AMOUNT OF SUBSIDY RECEIVABLE AT RS.30 ,00,000/- TRANSFERRED TO FIXED ASSETS ACCOUNT, THE DETAIL OF WHICH IS ENCLOSED AT PAGE 333 OF THIS REPLY 7. THE ASSESSEE COMPANY FILED A COPY OF LETTER DATE D 10.08.2009 OF DY.MANAGER, HPSIDC LTD., WHEREBY AN AMOUNT OF RS.30 LACS HAS BEEN RECOMMENDED AS SUBSID Y TO THE ASSESSEE. THE AO, OBSERVED THAT THE SUBSIDY HA D BEEN GIVEN AS INCENTIVE TO THE ASSESSEE COMPANY AND IT I S THE NATURE OF SUBSIDY WHICH IS IMPORTANT AND NOT ITS NOMENCLATURE. THE SUBSIDY HAS NOT BEEN GIVEN TO ME ET THE COST OF ANY PARTICULAR FIXED ASSET, THEREFORE, BY P LACING RELIANCE ON THE DECISION OF THE HON'BLE PUNJAB & HA RYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES (SUPR A),THE AO TREATED SUCH SUBSIDY AS REVENUE RECEIPT IN THE H ANDS OF THE ASSESSEE COMPANY. LD. CIT(A), REVERSED FINDING S OF THE AO ON THIS ISSUE AS IS EVIDENT FROM PARA 4.3 AND 4. 3.1 OF THE APPELLATE ORDER, WHICH IS REPRODUCED HEREUNDER : 4.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD COUNSELS FOR THE APPELLANT. THE CAPITAL INVESTMENT SUBSIDY WAS PART OF FISCAL INCENTIVES TO NEW INDUST RIAL UNITS OR EXISTING UNITS ON THEIR SUBSTANTIAL EXPANS ION, AS 8 PER OFFICE MEMORANDUM NO.1(10)/2001-NER DATED 07.01.2003 OF GOVT.OF INDIA, MINISTRY OF COMMERCE & INDUSTRIES (DEPARTMENT OF INDUSTRIAL POLICY & PROMO TION). THE AMOUNT OF SUBSIDY WAS @ 15% OF INVESTMENT IN PLANT A ND MACHINERY SUBJECT TO A CEILING OF RS. 30,00,000/-. 4.3.1 THE ASSESSING OFFICER TAXED THE SUBSIDY AS RE VENUE RECEIPT BY RELYING UPON THE DECISION OF HONBLE PUNJA B & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUST RIES LTD. (286 ITR 1), BUT THAT JUDGMENT WAS IN RESPECT O F SALES TAX SUBSIDY. IN THAT CASE THE HONBLE HIGH COURT HAD HE LD THAT SUBSIDY WAS IN THE FORM OF OPERATIONAL SUBSIDY PROV IDED BY THE STATE AFTER THE INDUSTRY HAD BEEN SET UP AND CO MMENCED COMMERCIAL PRODUCTION. THE FACTS OF THE INSTANT CAS E ARE ENTIRELY DISTINGUISHABLE FROM THE FACTS OF M/S ABHI SHEK INDUSTRIES LTD., SINCE THE SUBSIDY IN THIS CASE IS CAPITAL INVESTMENT SUBSIDY CALCULATED @ 15% OF PLANT AND MACHINERY. THE PURPOSE OF SUBSIDY WAS FOR THE DEVELOPMENT OF INDUSTRIES AND GENERATION OF EMPLOYM ENT IN THE STATE OF HIMACHAL PRADESH, IMPROVE THE AVAIL ABILITY OF CAPITAL AND INCREASE MARKET ACCESS TO PROVIDE A FLIP P TO THE PRIVATE INVESTMENTS IN THE STATE. ONE HAS TO APPLY THE 'PURPOSE TEST' AS ENUMERATED BY HONBLE SUPREME COU RT IN THE CASE OF PONNI SUGARS 85 CHEMICALS LTD. & OTHERS (306 ITR 392) FOR DETERMINING WHETHER AN EXPENDITURE IS OF CAPITAL NATURE OR REVENUE NATURE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET-UP OF A NE W UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY IS TO BE TREATED ON CAPITAL ACCOUNT. MOREOVER, IN THIS CASE, THE NAME OF THE SUBSIDY ITSELF IS CAPITAL INVESTMENT SUB SIDY. IN VIEW OF THIS DISCUSSION, IT IS HELD THAT THE ASSESSI NG OFFICER WAS NOT RIGHT IN TAXING THE AMOUNT OF RS. 30,00,000 /- OF CAPITAL INVESTMENT SUBSIDY AS REVENUE RECEIPT. ACCO RDINGLY, THE ADDITION MADE OF RS. 30,00,000/- IS DELETED. GR OUND OF APPEAL NO. 5 IS ALLOWED. 8. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS, FACTS OF THE CASE AND THE RELEVANT RECORD. A BARE PERUSA L OF THE OFFICE MEMORANDUM ISSUED BY GOVT. OF INDIA DATED 07.01.2003, AS REPRODUCED ABOVE, CLEARLY REVEALS TH E ELIGIBILITY FOR SUCH CAPITAL INVESTMENT SUBSIDY @ 1 5% OF THEIR INVESTMENT IN PLANT & MACHINERY SUBJECT TO CE ILING OF RS.30 LACS. THE SUBSIDY IS ALSO AVAILABLE TO THE EXISTING UNITS, ON THEIR SUBSTANTIAL EXPANSION. A BARE PERU SAL OF THE CLAUSE CLEARLY REVEALS THAT SUBSIDY IS INTENDED NOT FOR 9 RUNNING THE BUSINESS OF THE ASSESSEE BUT FOR SETTIN G UP THE SAME OR SUBSTANTIAL EXPANSION OF THE EXISTING BUSIN ESS. THE SUBSIDY IS PROVIDED TO THE ASSESSEE APPELLANT IN RE SPECT OF THEIR INVESTMENT IN PLANT & MACHINERY. IN THE SAID OFFICE MEMORANDUM, ELIGIBILITY OF SUCH SUBSIDY IS NOT LINK ED TO THE COMMENCEMENT OF COMMERCIAL PRODUCTION. THIS, IT IS EVIDENT THAT AO HAS CLEARLY IGNORED THE CLEAR TERMS AS PROV IDED IN THE SAID OFFICE MEMORANDUM. THE AO, HAS APPLIED TH E RATIO OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. (SUPRA), WITHOUT APPRE CIATING AND EVALUATING THE FACTUAL MATRIX OF THE CASE RELIE D UPON VIZ-A-VIS THE FACTS OF PRESENT CASE. THE HON'BLE S UPREME COURT IN THE CASE OF M/S SAHNI STEEL & PRESS WORKS LTD. V CIT (1997) 220 ITR 253 (S.C) HAS CLEARLY LAID DOWN THE TEST DEPENDING UPON THE FACTS OF EACH CASE, NATURE OF TH E SUBSIDY IS TO BE ASCERTAINED IN THE LIGHT OF THE TERMS OF T HE SUBSIDY SCHEME. IT IS WELL SETTLED THAT WHERE SUBSIDIES AR E GIVEN BY THE GOVT. TO ASSIST A TRADER, SUCH RECEIPTS OF SUBSIDY IS A REVENUE NATURE . THE PURPOSE OF SUBSIDY IS DECISIVE FACTOR ABOUT THE NATURE OF RECEIPT WHETHER CAPITAL OR REVE NUE. SUCH RECEIPTS IN THE FORM OF SUBSIDY ARE SUPPLEMENTARY T RADE RECEIPTS AND NOT CAPITAL RECEIPTS. THE HON'BLE SUP REME COURT IN THE CASE OF CIT V PONNI SUGARS & CHEMICALS LTD. (2008) 306 ITR 392 (S.C) HELD THAT SUBSIDY FOR REPA YMENT OF CAPITAL LOAN IS CAPITAL RECEIPT. IT WAS HELD BY TH E HON'BLE APEX COURT THAT WHERE MAIN ELIGIBILITY CONDITION IN SCHEME, UNDER WHICH ASSESSEE SUGAR MILL WAS GRANTED SUBSIDY , WAS THAT SUBSIDY MUST BE UTILIZED FOR REPAYMENT OF LOANS TAKEN 10 BY ASSESSEE TO SET-UP NEW UNIT OR FOR SUBSTANTIAL EXPANSION OF EXISTING UNIT. IN SUCH A SITUATION, THE SUBSIDY IS IN THE NATURE OF CAPITAL RECEIPT AND NOT EXIGIBLE TO TAX. 9. HAVING REGARD TO THE FACT-SITUATION OF THE PRESE NT CASE AND ABOVE LEGAL AND FACTUAL DISCUSSIONS, THE CASE O F THE ASSESSEE IS NOT COVERED BY THE DECISION OF THE JURI SDICTIONAL HIGH COURT, AS CONCEIVED BY THE AO. THEREFORE, THE FINDINGS OF THE LD. CIT(A) ARE UPHELD. CONSEQUENTLY, THIS G ROUND OF APPEAL OF THE REVENUE IS DISMISSED. 10. IN GROUND NO.3, REVENUE CONTENDED THAT CIT(A) E RRED IN DELETING THE ADDITION MADE BY THE AO OF RS.6,65,511 /- ON ACCOUNT OF CAPITALIZATION OF WATER AND ELECTRICITY EXPENSES, AS THE BUSINESS OF THE ASSESSEE COMMENCED AFTER 01.10.2007. 11. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. 'DR' PLACED RELIANCE ON THE ORDER PASSED BY THE AO, WHER EAS LD. 'AR' SUPPORTED THE ORDER OF THE CIT(A). LD. 'AR' R EFERRED TO PAGE 39 OF THE PAPER BOOK, WHICH IS LEDGER FOR THE PERIOD FROM 01.04.2007 TO 31.3.2008, DEMONSTRATING THAT AN AMOUNT OF RS.7,24,860/- REPRESENTING PRE-OPERATIVE EXPENSES, HAS BEEN TRANSFERRED TO FIXED ASSETS. THU S, THE ASSESSEE HAS NOT CLAIMED ANY EXPENSES IN RESPECT OF PRE- OPERATIVE EXPENSES. BEFORE THE CIT(A), THE ASSESSE E APPELLANT SUBMITTED THAT A COPY OF ACCOUNT, FROM WH ICH ADDITION HAS BEEN MADE, REPRESENTS DETAILS OF ELECT RICITY EXPENSES, WHICH HAD ALREADY BEEN TRANSFERRED TO PRE - 11 OPERATIVE EXPENSES AND NO DEDUCTION HAS BEEN CLAIME D IN THE PROFIT & LOSS ACCOUNT. HAVING REGARD TO SUCH C ONTENTION OF THE ASSESSEE, DULY SUPPORTED BY DOCUMENTARY EVID ENCE, LD. CIT(A) DELETED THE ADDITION IN RESPECT OF SUCH TRANSFERRED PRE-OPERATIVE EXPENSES. WE DO NOT FIND ANY INFIRMI TY IN THE FINDINGS OF THE CIT(A), AND HENCE, THE SAME ARE UPH ELD. ACCORDINGLY, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 12. GROUND NOS. 4 & 5 ARE GENERAL IN NATURE AND NEE D NO SEPARATE ADJUDICATION. ACCORDINGLY, BOTH THESE GRO UNDS OF APPEAL ARE DISMISSED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JULY,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12 TH JULY,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH