Assistant Commissioner of Income Tax,Circle-1(1), Nagpur V. M/s Maven Industries Ltd,m, Nagpur

ITSSA 1/NAG/2011

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 1766 (ITAT-NAGPUR)
• Duration Of Justice: 4 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 26-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Capital asset; Capital receipt

Judgement Text

1 IT(SS)A NOS.01,02&03/NAG/2011 0 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. IT (SS) A NO S . 01, 02 & 03/NAG/2011. ASSESSMENT YEAR S : 20 05 - 06, 2006 - 07 & 2007 - 08 ASSTT. COMMISSIONER OF INCOME - TAX, M/S MAVEN INDUSTRIES LTD., CENTRAL CIRCLE - (1), NAGPUR. VS. NAGPUR. PAN AADCM 1601R APPELLANT. RESPONDENT. A PPELLANT BY : SHRI NARENDRA KANE. RESPONDENT BY : SHRI ABHAY AGRAWAL. DATE OF HEARING : 0 7 - 01 - 2016 DATE OF PRONOUNCEMENT : 25 TH FEB. , 2016. O R D E R PER SHRI SHAMIN YAHYA, A.M . THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) FOR THE RESPECTIVE ASSESSMENT YEARS. SINCE THE ISSUES ARE COMMON AND CONNECTED AND THE APPEALS WERE HEARD TOGETHER , T HESE ARE BEING CONSOLIDATED AND DISPOSED OF BY THIS COM MON ORDER. 2. THE ISSUE RAISED IS THAT THE LEARNED CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.2,05,93,203/ - , RS.1,29,89,898/ - & RS.96,46,566/ - FOR ASSESSMENT YEARS 2005 - 06, 2 006 - 07 AND 2007 - 08 RESPECTIVELY IN RESPECT OF SALES TAX INCENTIVE TREAT ING THE SAME AS CAPITAL SUBSIDY. THE RELATED GROUNDS OF APPEAL READ AS UNDER : 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A), NAGPUR ERRED IN RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF RELIANCE INDUSTRIES LTD. IN A PPEAL NO. 1299/2009 DATED 2 IT(SS)A NOS.01,02&03/NAG/2011 15.4.2009, EVEN THOUGH THE FACTS OF THAT CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE, IN AS MUCH AS IN THAT CASE THE INCENTIVE WAS GIVEN TO THE ASSESSEE BEFORE THE COMMENCEMENT OF PRODUCTION, WHEREAS IN THE ASSESSE ES CASE THE INCENTIVE IS GIVEN AFTER THE COMMENCEMENT OF PRODUCTION. 2. .ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A), NAGPUR ERRED IN NOT APPLYING THE RATION OF THE DECISION OF HONBLE SUPREME COURTS DECISION IN CASE OF SAWHNEY STEEL AND PRESS WORKS LTD. VS. CIT (228 ITR 253) WHEREIN IT HAS BEEN HELD THAT THE INCENTIVE RECEIVED AFTER COMMENCEMENT OF PRODUCTION IS IN THE NATURE OF REVENUE RECEIPT AND THIS RATIO SQUARELY APPLIES TO THE ASSESSEES CASE, THE FACTS BEING THE SAME. 3. .ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A), NAGPUR ERRED IN NOT APPRECIATING THE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF HONBLE BOMBAY HIGH COURT AND AN APPEAL IS FILED BEFORE THE HONBLE SUPREME COURT, AGAINST THIS DEC ISION. 3. AT THE OUTSET IN THIS CASE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE INDUSTRIES LTD. IN APPEAL NO. 1299/2009 DATED 15 - 04 - 2009. LEARNED COUNSEL SUBMITTED THAT IN THESE CASES THE ASSESSEE COMPANY HAS CLAIMED SUBSIDY /INCENTIVE ON SALES - TAX AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX WHICH WAS NOT ACCEPTED BY AO . HOWEVER, LEARNED CIT(APPEALS) HAS HELD THAT THE ASSESSEE HAS RECEIVED THE SALES - TAX SUBSIDY FOR MAHARASHTRA STATE UNDER A PACKAGE SCHEME OF INCENTIVES 1993. THE HONBLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF RELIANCE INDUSTRIES LTD. (SUPRA) THAT THE INCENTIVE RECEIPT UNDER THE PACKAGE SCHEME OF INC ENTIVES O F MAHARASHTRA IS A CA PITAL RECEIPT AND NOT CHARGEABLE TO TAX. HENCE LEARNED COUNSEL SUBMITTED THAT THE ISSUE INVOLVED IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 4. PER CONTRA LEARNED D.R. COULD NOT POINT OUT AS TO HOW THE ASSESSEES CASE IS DISTINGUI SHABLE FROM THE HONBLE BOMBAY HIGH COURT DECISION CITED SUPRA. 3 IT(SS)A NOS.01,02&03/NAG/2011 5. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT WHEN THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT THE SALES - TAX SUBSIDY RECEIPT UNDER THE SAME SCHEME OF GOVERNMENT OF MAHARASHTRA IS NOT EXIGIBLE TO TAX, WE ARE INCLINED TO ACCEPT THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE. WE MAY GAINFULLY REFER HEREUNDER THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE INDUSTRIES (SUPRA) AS UNDER : 4 . SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL RELIED UPON THE ITAT MUMBAI BENCH (SPECIAL BENCH) DECISION IN THE CASE OF ASSESSEE ITSELF IN DY . CITV. RELIANCE INDUSTRIES LTD . [2004] 88 ITD 273 . WE MAY GAINFULLY REPRODUCE THE FOLLOWING PORTION : 'THE SCHEME FRAMED BY THE GOVERNMENT OF MAHARASHTRA IN 1979 AND FORMULATED B Y ITS RESOLUTION DATED 5 - 1 - 1980 HAS BEEN ANAL Y SED IN DETAIL BY THE TRIBUNAL IN ITS ORDER IN RIL FOR THE ASSESSMENT Y EAR 1985 - 86 WHICH WE HAVE ALREADY REFERRED TO IN EXTENSO . ON AN ANALYSIS OF THE SCHEME , THE TRIBUNAL HAS COME TO THE CON C LUSION THAT THE THRUST OF THE SCHEME IS THAT THE ASSESSEE WOULD BECOME ENTITLED FOR THE SALES TAX INCENTI V E EVEN BEFORE THE COMMENCEMENT OF THE PRODUCTION , WHICH IMPLIES THAT THE OBJECT OF THE INCENTI V E IS TO FUND A PART OF THE COST OF THE SETTING UP OF THE FACTORY IN THE NOTIFIED BACKWARD AREA. THE TRIBUNAL HAS , AT MORE THAN ONE PLACE , STATED THAT THE THRUST OF THE MAHARASHTRA SCHEME WAS THE INDUSTRIAL DE V ELOPMENT OF THE BACKWARD DISTRICTS AS WELL AS GENERATION OF EMPLO Y MENT THUS ESTABLISHING A DIRECT NEXUS WITH THE INVESTMENT IN FIXED CAPITAL ASSETS. IT HAS BEEN FOUND THAT THE ENTITLEMENT OF THE INDUSTRIAL UNIT TO CLAIM ELIGIBILITY FOR THE INCENTIVE AROSE EVEN WHILE THE INDUSTRY WAS IN THE PRO CESS OF BEING SET UP. ACCORDING TO THE TRIBUNAL , THE SCHEME WAS ORIENTED TOWARDS AND WAS SUBSERVIENT TO THE INVESTMENT IN FIXED CAPITAL ASSETS. THE SALE TAX INCENTIVE WAS ENVISAGED ONLY AS AN ALTERNATIVE TO THE CASH DISBURSEMENT AND BY ITS VERY NATURE WAS TO BE AVAILABLE ONLY AFTER PRODUCTION COMMENCED. THUS, IN EFFECT , IT WAS HELD BY THE TRIBUNAL THAT THE SUBSIDY IN THE FORM OF SALES TAX INCENTIVE WAS NOT GIVEN TO THE ASSESSEE FOR ASSISTING IT IN CARRYING OUT THE BUSINESS OPERATIONS . THE OBJECT OF THE SUBS IDY WAS TO ENCOURAGE THE SETTING UP OF INDUSTRIES IN THE BACKWARD AREA . ' THUS , IT CAN CLEARLY BE SEEN THAT A FINDING HAS BEEN RECORDED THAT THE OBJECT OF THE SUBSIDY WAS TO ENCOURAGE THE SETTING UP OF INDUSTRIES IN THE BACKWARD AREA BY GENERATING EMPL OYMENT THEREIN . IN OUR OPINION , IN ANSWERING THE ISSUE , THE TEST AS LAID DOWN B Y THE SUPREME COURT IN CITV. P O NNI SUGARS & CHEMICALS LTD. [2008] 306 ITR 392 WILL HA V E TO BE CONSIDERED. THE SUPREME COURT HAS HELD THAT THE TEST OF THE CHARACTER OF THE RECEIPT OF A SUBSIDY IN THE HANDS OF THE ASSESSEE UNDER A SCHEME HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GRANTED . THE COURT FURTHER OBSERVED THAT IN SUCH CASES , WHAT HAS TO BE APPLIED IS THE PURPOSE TEST . THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL. FORM OF SUBSIDY IS MATERIAL. COURT THEN PROCEEDED TO OBSERVE AS UNDER : THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE M UST BE UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF EXISTING UNITS. ON THIS 4 IT(SS)A NOS.01,02&03/NAG/2011 ASPECT THERE IS NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PRO FITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOU NT. THEREFORE, LET US APPLY THE PURPOSE TEST BASED ON THE FINDINGS RECORDED BY THE SPECIAL BENCH. THE OBJECT OF THE SUBSIDY WAS TO SET UP A NEW UNIT IN A BACKWARD AREA TO GENERATE EMPLOYMENT. IN OUR OPINION, THE SUBSIDY IS CLEARLY ON CAPITAL ACCOUNT. I N THAT VIEW OF THE MATTER, QUESTION (D) AS FRAMED, WOULD ALSO NOT ARISE. WE FIND THAT THE RATIO OF THE ABOVE CASE DULY APPLIES IN THIS CASE. THE DISTINCTION SOUGHT BY THE REVENUE IS NOT CONVINCING. BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THE ABO VE DECISION REFERS ONLY TO SALES - TAX INCENTIVE RECEIVED BEFORE COMMENCEMENT OF PRODUCTION. MOREOVER WE CANNOT TAKE INTO ACCOUNT THE GROUND RAISED BY THE REVENUE THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF HONBLE BOMBAY HIGH COURT AND AN APPEAL IS FILED BEFORE THE HONBLE SUPREME COURT AGAINST THIS DECISION. THE AO HAS ALSO NOT BROUGHT ON RECORD ANY COGENT BASIS AS TO WHY THE TRIBUNAL S DECISION IN THE CASE OF RELIANCE INDUSTRIES IS NOT APPLICABLE. HE HAS ONLY MENTIONED THAT THE ASSESSEE HAS NOT DISTINGUISHED THE FACTS OF THEIR CASE VIS - A - VIS THE CASE DECIDED BY THE ITAT TO BRING OUT THE SIMILARITY BETWEEN THE TWO SCHEMES. WE FIND THAT I T WAS INCUMBENT UPON THE AO TO COGENTLY BRING ON RECORD ANY DISTINCTION WHICH HE HAS FOUND. IN PARA 5.5 OF HIS ASSESSMENT ORDER THE AO HAS TRIED TO DISTINGUISH THE ITAT, NAGPUR BENCH DECISION WHICH HAVE FOLLOWED THE DECISION OF RELIANCE INDUSTRIES BY MAK ING REFERENCE TO OTHER CASE LAWS. IN OUR CONSIDERED OPINION WHEN THE ISSUE IS COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT, THE SAME HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. HENCE N O CASE HAS BEEN MADE OUT BEFORE US , FOR ANY DISTINC TION BETWEEN THE SCHEME UNDER WHICH ASSESSEE HAS RECEIVED THE INCENTIVE AND THE ONE DEALT WITH BY HONBLE JURISDICTIONAL HIGH COURT ABOVE. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(APPEALS). ACCORDINGLY WE UPHOLD THE SAME. 5 IT(SS)A NOS.01,02&03/NAG/2011 6 . IN THE R ESULT, THESE APPEALS FILED BY THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF FEB ., 2016 SD/ - SD/ - (MUKUL K. SH RAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 2 5 TH FEBRUARY , 2016. COPY FORWARDED TO : 1. M/S MAVEN INDUSTRIES LTD., UG - 7&8, JAGAT CHAMBERS, C.A. ROAD, NEAR AMBEDKAR SQUARE, BAGADGUNG, NAGPUR. 2. A.C.I.T., CENTRAL CIRCLE - 1(1), NAGPUR. , 3. COMMISSIONER OF INCOME - TAX - , NAGPUR. 4. CIT(APPEALS) - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE.