Appeal details
Counselvise Citation
161920514 RSA 2008
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 7 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-12-2011
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
D
Next Hearing Date
22-11-2011
Assessment Year
2005-2006
Appeal Filed On
09-05-2008
Judgement Text
, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH , ,, , ! ! ! ! . .. .# ## # . .. .$%& $%& $%& $%&, , , , #' #' #' #' # ( # ( # ( # ( BEFORE S/SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER AND A. K. GARODIA, ACCOUNTANT MEMBER) ITA NO.2007/AHD/2007 [ASSTT.YEAR : 2003-2004 AND 2004-2005] ITA NO.1619/AHD/2008 : [ASSTT.YEAR : 2005-2006] ITA NO.1382 AND 1383/AHD/2009 : [ASSTT.YEAR : 2003- 2004 AND 2006-2007] DCIT, CIR.4(1) BARODA. /VS. M/S.MUNJAL AUTO INDUSTRIES LTD. 187, GIDC ESTATE WAGHODIA DIST : BARODA. ITA NO.1420/AHD/2009 [ASSTT.YEAR : 2003-2004] M/S.MUNNJAL AUTO INDUSTRIES 187, GIDC ESTATE WAGHODIA DIST : BARODA. /VS. ITO, WARD-4(1) BARODA. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) . / 0 #/ REVENUE BY : SHRI JAI RAJ KUMAR 2 / 0 #/ ASSESSEE BY : SHRI BHAVIN MARFATIA 3 / '/ DATE OF HEARING : 22 ND NOVEMBER, 2011 4%5 / '/ DATE OF PRONOUNCEMENT : 21 ST DECEMBER, 2011 #6 / O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER: OUT OF THIS BUNCH OF FIVE APPEALS, ONE APPEAL IS OF THE REVENUE FOR A.Y. 2004-2005. THERE ARE TWO CROSS APPEALS OF THE ASSESSEE AND THE REVENUE FOR A .Y.2003-2004 AND REMAINING TWO APPEALS ARE ALSO FILED BY THE REVENUE FOR A.Y.2005-2006 AND 2006-2007 AND ALL THESE APPEALS ARE DIRECTED AGAINS T THE RESPECTIVE ORDERS OF THE LEARNED CIT(A)-III, BARODA OF DIFFERENT DATES. SIN CE SOME COMMON ISSUES ARE ITA NO.1382 AND 2007 /AHD/2007 AND 3 OTHERS -2- INVOLVED, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E. 2. SINCE FIRST ORDER OF THE LEARNED CIT(A) DATED 28 -2-2007 IS FOR A.Y.2004- 2005 AND ALL THE REMAINING ORDERS ARE OF SUBSEQUENT DATES, WE FIRST TAKE UP THE APPEAL OF THE REVENUE FOR A.Y.2004-2005 I.E. ITA NO .2007/AHD/2007. 3. THE GROUND NO.1 OF THE ABOVE APPEAL IS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.7,47,590/- BEING PAYMENT OF RECOMPEN SATION OF STATE BANK OF INDIA DISALLOWED BY THE AO CONSIDERING THE SAME AS CAPITAL EXPENDITURE IN NATURE. 4. THIS ISSUE HAS BEEN DECIDED BY THE LEARNED CIT(A ) AS PER PARA NO.8 OF HIS ORDER FOR A.Y.2004-2005 WHICH IS AS UNDER: 8. GROUND NO.6 RELATES TO DISALLOWANCE OF RS.7,47, 590/- BEING RECOMPENSATION PAYMENT TO STATE BANK OF INDIA ON TH E GROUND THAT SUCH EXPENDITURE CONFERRED ENDURING ADVANTAGE ON THE ASS ESSEE AND WAS, THEREFORE, IN THE NATURE OF CAPITAL EXPENDITURE. T HIS ISSUE IS ALSO SQUARELY COVERED BY MY DECISION IN APPELLANTS OWN CASE FOR A.Y.2003- 04. FOLLOWING THE RATIONALE OF MY ORDER DATED 29-9 -2006, THE DISALLOWANCE IS DIRECTED TO BE DELETED. 5. THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS NOW F ULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL DECISION RENDERED IN ASSES SEES OWN CASE FOR A.Y.2003-2004 IN ITA NO.2761/AHD/2006 DATED 9-4-201 0 AND HE SUBMITTED A COPY OF THIS TRIBUNAL DECISION. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE REVENUE A UTHORITIES AND TRIBUNAL DECISION CITED BY THE LEARNED COUNSEL FOR THE ASSES SEE. WE FIND THAT IN A.Y.2003-2004, THE ISSUE IN DISPUTE WAS REGARDING T HE ADDITION MADE BY THE AO OF RS.50 LAKHS BEING THE PAYMENT TO STATE BANK O F INDIA FOR RE- ITA NO.1382 AND 2007 /AHD/2007 AND 3 OTHERS -3- COMPENSATION. THIS ISSUE HAS BEEN DECIDED BY THE T RIBUNAL VIDE PARA 7 OF THE ORDER CITED SUPRA WHICH IS REPRODUCED AS UNDER: 7. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL ON THIS GROUND. THE ASSE SSEE HAS SPECIFICALLY EXPLAINED THAT IT BORROWED LOANS FROM VARIOUS FINAN CIAL INSTITUTIONS AND WAS UNDER OBLIGATION TO PAY HEAVY INTEREST. AS PER BIFR ORDER, THE PAYMENT OF INTEREST WAS KEPT IN ABEYANCE AND IT WAS PROVIDED THAT IN CASE OF ASSESSEE REVIVES ITS FINANCIAL GROWTH, INTE REST SHOULD BE RECOVERED BY THE FINANCIAL INSTITUTIONS AND THE BAN KS. THE ASSESSEE AND THE FINANCIAL INSTITUTIONS AND THE BANKS ENTERED IN TO AN AGREEMENT ON REVIVAL OF FINANCIAL GROWTH OF THE ASSESSEE THAT RS .50 LAKHS BE PAID AS INTEREST IN FULL AND FINAL SETTLEMENT OF THE INTERE ST PAYMENT. THE INTEREST, THEREFORE, BECAME ASCERTAINED LIABILITY ON SETTLEME NT BETWEEN THE PARTIES IN THE YEAR UNDER CONSIDERATION AND PAYMENT IS ALSO MADE IN THE YEAR UNDER CONSIDERATION. THE SETTLEMENT OF PART PAYMENT OF THE INTEREST IN FULL AND FINAL SETTLEMENT WAS IN THE INTEREST OF TH E ASSESSEE AND WAS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE B USINESS. THE LEARNED CIT(A) WAS, THEREFORE, JUSTIFIED IN HOLDING THAT NA TURE OF THE PAYMENT WAS THAT OF THE INTEREST WHICH IS REVENUE IN NATURE . THE LEARNED CIT(A), WAS THEREFORE, JUSTIFIED IN DELETING THE ENTIRE ADD ITION. THIS GROUND OF APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. SINCE THE LEARNED DR HAS NOT CONTROVERTED TO THE SU BMISSIONS OF THE LEARNED COUNSEL OF THE ASSESSEE THAT FACTS ARE IDENTICAL, W E DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). RE SPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CA SE FOR A.Y.2003-2004, WE DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY THIS GROUND OF THE REVENUE IS DISMISSED. 7. THE GROUND NO.2 OF THE REVENUES APPEAL READS AS UNDER: 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE AMOUNT OF RS.62,38,589/- BEING SUBSIDY GIVEN BY STA TE GOVERNMENT IN THE FORM OF SALES TAX DEFERMENT BEING THE AMOUNT AD DED BY THE AO TREATING IT AS REVENUE RECEIPT FOR THE REASON THAT SUBSIDY WAS NOT FOR FIXED ASSETS BUT WAS TO AUGMENT THE NORMAL BUSINESS RUNNING OF BINOLA UNIT WHICH HAD BEEN ESTABLISHED YEARS BACK SO QUEST ION OF SETTING UP OF NEW INDUSTRIAL UNIT DOES NOT ARISE AS PER FINDING O F THE AO. ITA NO.1382 AND 2007 /AHD/2007 AND 3 OTHERS -4- 8. THE BRIEF FACTS TILL THE ASSESSMENT STAGE AS STA TED IN THE ORDER OF LEARNED CIT(A) VIDE PARA-9 ARE REPRODUCED AS UNDER: 9. GROUND NO.7 CHALLENGES THE ADDITION OF RS.62,38 ,589/- BEING AMOUNT OF SALES-TAX AND VAT INCENTIVE GRANTED BY GO VERNMENT OF HARYANA FOR SETTING UP OF BINOLA MANUFACTURING UNIT IN THE STATE OF HARYANA, TREATED AS A REVENUE RECEIPT. THIS AO NOT ICED THAT IN THE TAX AUDIT REPORT, THE AUDITOR POINTED OUT THE RECEIPT O F THIS INCENTIVE, AND IN NOTE-5 IN PART-11 OF SCHEDULE -16 OF THE NOTES ON A CCOUNTS, IT WAS MENTIONED AS UNDER: 'BINOLA UNIT OF THE COMPANY HAS AVAILED SALES-TAX I NCENTIVE AMOUNTING TO RS.214.70 LAKHS BY THE END OF 3 MARCH, 2004 IN THE FORM OF DEFERMENT, TO BE CONVERTED LATER INTO C APITAL SUBSIDY, IN ACCORDANCE WITH SCHEME OF THE GOVERNMEN T OF HARYANA FOR DEVELOPMENT OF INDUSTRIES. THE AMOUNT I S PAYABLE TO GOVERNMENT IF SPECIFIED CONDITIONS ARE N OT FULFILLED CONSIDERING THE NATURE OF THE INCENTIVE AND LEGAL O PINION TAKEN BY THE COMPANY, THE AMOUNT IS TREATED AS A CA PITAL RECEIPT AND DISCLOSED AS CAPITAL RESERVE IN THE BAL ANCE SHEET.' THE A.O FURTHER NOTED THAT UNDER THE HARYANA GENERA L SALES-TAX RULES, 1975, THE INCENTIVE WAS IN THE FORM OF DEFERMENT OF SALES -TAX. UNDER THE SCHEME, FOR THE FIRST 5 YEARS, THE ASSESSEE WAS REQUIRED TO COL LECT THE SALES-TAX AND DEPOSIT THE SAME IN A RESERVE ACCOUNT. AT THE END OF 5 YEAR S, FOR A FURTHER PERIOD OF 5 YEARS, THE ASSESSEE WAS REQUIRED TO PAY TO GOVERNME NT OF HARYANA 50% OF THE SALES-TAX SO COLLECTED IN 5 EQUAL ANNUAL INSTALLMEN TS. THE RETRAINING 50% OF THE SALES-TAX SO COLLECTED WAS TO BE RETAINED BY TH E ASSESSEE BY WAY OF SUBSIDY. IN THE OPINION OF THE A.O, EITHER THE AMOUNT OF SUB SIDY SHOULD HAVE BEEN REDUCED FROM THE COST OF THE ASSETS IN ACCORDANCE W ITH THE PROVISIONS OF SECTION 43(L), OR SHOULD BE TAXED AS REVENUE RECEIP T. THE ASSESSEE, HOWEVER, TOOK THE PLEA THAT THE AMOUNT OF SUBSIDY WAS NOT RE LATABLE TO THE ACQUISITION OF ANY CAPITAL ASSETS AND, THEREFORE, PROVISIONS OF SE CTION 43(1) WOULD NOT BE APPLICABLE. THE A.O, REFERRING TO THE DECISION IN T HE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. 228 ITR 253(SC) OBSERVED THAT THE TEST TO DISTINGUISH WHETHER THE RECEIPT OF THE SUBSIDY WAS OF CAPITAL O R REVENUE NATURE DEPENDED UPON THE PURPOSE OF SUBSIDY. 'IF THE PURPOSE WAS T O HELP THE ASSESSEE TO SET UP ITS BUSINESS OR TO COMPLETE A PROJECT, THE MONEY MU ST BE TREATED AS HAVING BEEN RECEIVED FOR CAPITAL PURPOSE. BUT IF THE MONEY IS GIVEN TO THE ASSESSEE FOR ASSISTING HIM IN CARRYING OUT THE BUSINESS OPERATIO NS AND THE MONEY IS GIVEN ONLY AFTER THE COMMENCEMENT OF PRODUCTION, SUCH SUB SIDIES MUST BE TREATED AS ASSISTANCE FOR THE PURPOSE OF THE TRADE.' THE A.O. CONCLUDED THAT THE PURPOSE OF THE SUBSIDY WAS FOR ASSISTING THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS AND NOT F OR SETTING TIP OF THE BUSINESS. IT WAS HELD THAT: ITA NO.1382 AND 2007 /AHD/2007 AND 3 OTHERS -5- 'IN THE INSTANT CASE, THERE IS NO DENYING THE FACT THAT THE BINOLA UNIT HAS BEEN ESTABLISHED YEARS BACK AND IS MANUFACTURING GEAR BOX COMPONENTS INVOLVING PROCESS ING, FORGING, MACHINING AND FINISHING. THIS FACT HAS BEE N ADMITTED BY THE ASSESSEE ITSELF VIDE ITS SUBMISSION DATED 27-11-2006, WHEREIN THE ASSESSEE HAS STATED THAT THE AMOUNT OF SALES-TAX INCENTIVE OF RS.62,38,589/- IS NOT SUBSIDY FOR FIXED ASSETS. RATHER INCENTIVE IS WITH REFERENCE TO SALES MADE AFTER THE FIXED ASSETS ARE PUT TO USE. THE VERY FACT THAT THE SUBSIDY IS GIVEN IN THE FORM OF THE SALES-TAX DEFER MENT I.S INDICATIVE OF THE FACT THAT THE SUBSIDY IS TO A UGMENT THE NORMAL BUSINESS RUNNING, ONCE THE BUSINESS IS S ET UP. AS A MATTER OF FACT, IN THIS CASE THE SUBSIDY HAS BEEN PROVIDED BY THE GOVERNMENT OF HARYANA TO THE ASSESSEE COMPANY FOR NORMAL RUNNING OF BUSINESS AND NOT FOR SETTING UP OF BUSINESS. THEREFORE, THE AMOUNT O F SUBSIDY RECEIVED BY THE ASSESSEE AMOUNTING TO RS.62,38,589/- IN THE FORM OF SALES-TAX DEFERMENT C AN ONLY BE TREATED AS REVENUE RECEIPT. THE SAME IS, THEREFORE, TAXED ACCORDINGLY. 9. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT(A). BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED BY THE LEARNED COUNSEL OF THE ASSESSEE THAT NONE OF THE TESTS LAID DOWN BY THE HONBLE SUP REME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD., 228 ITR 253 (SC) (RELIED UPON BY THE AO) WAS APPLICABLE TO THE FACTS OF THE CASE. IT WAS SUBMITTED THAT AS PER THE HARYANA GENERAL SALES TAX ACT 1975, THE SUBSIDY WAS PROVIDED BY THE HARYANA G OVERNMENT IN THE INTEREST OF INDUSTRIAL DEVELOPMENT OF THE STATE. THE LEARNED C IT(A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DCIT VS. RELIANCE INDUSTRIE S, 88 ITD 273 (SB). NOW, THE REVENUE IS IN APPEAL BEFORE US. 10. THE LEARNED DR OF THE REVENUE SUBMITTED THAT IT IS AN OPERATIONAL SUBSIDY GRANTED AFTER THE UNIT STARTED PRODUCTION AND HENCE , IT IS A REVENUE RECEIPT AND IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF SAHNEY STEEL (SUPRA). AN ALTE RNATIVE CONTENTION WAS ALSO MADE THAT EVEN IF IT IS HELD THAT IT IS A CAPITAL RECEIP T, THEN ALSO, THE AO SHOULD BE DIRECTED TO REDUCE THE AMOUNT OF CAPITAL SUBSIDY FROM THE COST OF FIXED ASSETS FOR THE PURPOSE OF CALCULATING DEPRECIATION, AS HAS BEEN PROPOSED BY T HE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS. AS AGAINST THIS, THE LEARNED AR OF TH E ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A). RELIANCE WAS PLACED ON THE DEC ISION OF SPECIAL BENCH IN THE CASE ITA NO.1382 AND 2007 /AHD/2007 AND 3 OTHERS -6- OF RELIANCE INDUSTRIES (SUPRA). HE ALSO PLACED REL IANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD., 306 ITR 392 (SC). IT WAS ALSO SUBMITTED THAT IN THIS C ASE, THE HONBLE APEX COURT HAS DULY CONSIDERED THE EARLIER DECISION RENDERED IN TH E CASE OF SAHNEY STEEL AND PRESS WORKS LTD., (SUPRA) AND THEREAFTER, THE ISSUE WAS D ECIDED IN FAVOUR OF THE ASSESSEE AND THEREFORE, THE ORDER OF THE CIT(A) SHOULD BE UPHELD . 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE P ERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. WE FIND THAT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS STATED BY THE AO IN THE SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE ON 17.11.2006 THAT THE ASSESSEE WAS RE QUESTED TO SHOW CAUSE AS TO WHY THE AMOUNT OF CAPITAL SUBSIDY SHOULD NOT BE REDUCED FROM THE COST OF RESPECTIVE ASSETS FOR THE PURPOSE OF CALCULATING DEPRECIATION. IN RE PLY DATED 27.11.2006, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT THE AM OUNT OF SALES-TAX INCENTIVES RECEIVED BY THE ASSESSEE OF RS.62,38,589/- WAS INCL UDED IN THE SCHEDULE-2 OF RESERVES AND SURPLUS AND THE AMOUNT WAS NOT SUBSIDY FOR THE FIXED ASSETS. IT WAS SUBMITTED THAT THE INCENTIVE IS WITH REFERENCE TO THE SALES MADE A FTER THE FIXED ASSETS WERE PUT TO USE AND HENCE, THIS WAS NOT A CASE IN WHICH PORTION OF COST OF FIXED ASSETS WAS MET BY THE GOVERNMENT AND THEREFORE, THIS AMOUNT WAS NOT REQUI RED TO BE DEDUCTED FROM THE COST OF FIXED ASSETS. IN VIEW OF THIS REPLY OF THE ASSE SSEE, NOW IT EMERGES THAT WHEN THE AO CONSIDERED THIS RECEIPT OF SUBSIDY AS CAPITAL RE CEIPT AND ASKED FOR REDUCTION OF THE SAME FROM THE COST OF FIXED ASSETS FOR THE PURPOSE OF CALCULATING DEPRECIATION ALLOWABLE TO THE ASSESSEE, IT WAS THE SUBMISSION OF THE ASSESSEE BEFORE THE AO THAT THIS INCENTIVE IS WITH REFERENCE TO SALES MADE AFTER THE FIXED ASSETS WERE PUT TO USE AND THEREFORE, IT WAS NOT A CAPITAL RECEIPT MEANT FOR C OST OF FIXED ASSETS. WHEN THE AO TREATED THE AMOUNT OF SUBSIDY AS REVENUE RECEIPT, T HE CASE OF THE ASSESSEE IS THAT IT IS A CAPITAL RECEIPT. THE DECISION OF THE SPECIAL OF TH E TRIBUNAL RENDERED IN THE CASE OF RELIANCE INDUSTRIES (SUPRA) HAS BEEN RELIED UPON BY THE LEARNED CIT(A) TO HOLD THAT THIS RECEIPT AS CAPITAL RECEIPT, HOWEVER, THERE IS NO FINDING GIVEN BY THE LEARNED CIT(A) AS TO WHETHER THE SUBSIDY IS REQUIRED TO BE REDUCED FROM THE COST OF FIXED ASSETS FOR THE PURPOSE OF CALCULATING DEPRECIATION ALLOWABLE TO THE ASSESSEE. ONCE IT IS ACCEPTED THAT THE SUBSIDY RECEIPT BY THE ASSESSEE I S WITH REFERENCE TO THE FIXED ASSETS ITA NO.1382 AND 2007 /AHD/2007 AND 3 OTHERS -7- AND THEREFORE, CAPITAL RECEIPTS AND NOT INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE AS REVENUE RECEIPT, THE NATURAL CONSEQUENCE IS THIS TH AT THE SAME IS REQUIRED TO BE REDUCED FROM THE COST OF FIXED ASSETS FOR THE PURPOSE OF CA LCULATING DEPRECIATION AS PER THE PROVISIONS OF SECTION 43(1) OF THE ACT. ON THIS AS PECT, THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IS SILENT. SIMILARLY, IN THE CASE OF PONNI SUGARS & CHEMICALS (SUPRA) ALSO, THIS ISSUE WAS NOT BEFORE THE HONBLE APEX COURT AS TO WHETHER THE SUBSIDY RECEIVED BY THE ASSESSEE AND TREATED AS CAP ITAL RECEIPT IS REQUIRED TO BE REDUCED FROM THE COST OF FIXED ASSETS FOR THE PURPO SE OF COMPUTATION OF DEPRECIATION ALLOWED TO THE ASSESSEE. IN THE PRESENT CASE, THI S WAS THE FIRST PROPOSITION PUT FORWARD BY THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS A ND ALTHOUGH IN THE GROUND OF THE APPEAL BEFORE US BY THE REVENUE, THIS CONTENTION IS NOT PUT FORWARD IN SO MANY WORDS, BUT THIS IS THE GROUND OF THE REVENUE THAT THE LEAR NED CIT(A) IS WRONG IN HOLDING THAT THE AO WAS WRONG IN TREATING THE SUBSIDY AS REVENUE RECEIPT FOR THE REASON THAT SUBSIDY WAS NOT FOR FIXED ASSETS. HENCE, AS PER TH IS GROUND OF THE REVENUE, IT COMES OUT THAT IF IT IS HELD THAT THE SUBSIDY IS FOR FIXE D ASSETS, THEN THE NATURAL CONSEQUENCE AS PER THE LAW SHOULD FOLLOW AND IF IT IS HELD THAT IT IS NOT FOR FIXED ASSETS, THEN THE SAME SHOULD BE REQUIRED TO BE ADDED TO THE INCOME OF THE ASSESSEE AS REVENUE RECEIPT. ON THIS ASPECT, AS TO WHETHER THE SUBSIDY RECEIPT BY T HE ASSESSEE IS REVENUE OR CAPITAL RECEIPT, WE FEEL THAT THIS ASPECT IS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH RENDERED IN THE CASE OF RELIANCE INDUSTRIES (SUPRA) AND ALSO BY THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF P ONNI SUGAR & CHEMICALS LTD. (SUPRA) AND HENCE, WE DECIDE THIS ISSUE IN FAVOUR O F THE ASSESSEE. BUT AT THE SAME TIME, WE DIRECT THE AO TO CONSIDER THE RECEIPT AS S UBSIDY RECEIVED BY THE ASSESSEE FOR FIXED ASSETS AND THEREFORE, THE AO SHOULD RECALCULA TE THE DEPRECIATION AS PER THE LAW AFTER REDUCING THE AMOUNT OF SUBSIDY FROM THE COST OF FIXED ASSETS AS PER THE PROVISIONS OF SECTION 43(1) OF THE ACT. BEFORE DOI NG SO, THE AO SHOULD PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE AND THEREAFTER HE SHOULD PASS NECESSARY ORDER AS PER THE LAW ON THESE ASPECTS. T HE GROUND NO.2 IS PARTLY ALLOWED AS INDICATED ABOVE. 12. IN THE RESULT, THIS APPEAL OF THE REVENUE IS PA RTLY ALLOWED. ITA NO.1382 AND 2007 /AHD/2007 AND 3 OTHERS -8- 13. NOW, WE TAKE UP THE CROSS APPEALS OF THE ASSESS EE AND THE REVENUE FOR A.Y.2003-04 I.E. ITA NO.1420/AHD/2009 AND 1382/AHD/ 2009. FIRST, WE TAKE UP THE ASSESSEES APPEAL. 14. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN NOT A DJUDICATING THE FOLLOWING GROUNDS OF APPEAL HOLDING THAT THE SAID G ROUNDS OF APPEAL WERE NOT PRESSED: A. THE LD. AO ERRED IN ISSUING NOTICE UNDER SECTION 14 8 AND MAKING ASSESSMENT U/S.147. YOUR APPELLANT SUBMITS THAT THE AO NOT JUSTIFIED IN PROCEEDING TO MAKE REASSESSMENT AS THERE WERE NO GROUNDS TO HAVE REASON TO BELIEVE THAT ANY INCOME H AS ESCAPED ASSESSMENT. YOUR APPELLANT PRAYS THAT THE REASSESSMENT BE CANC ELLED. B. THE AO ERRED IN MAKING ASSESSMENT WITHOUT DISPOS ING THE OBJECTIONS TO REASSESSMENT FILED VIDE LETTER DATED 5 TH NOVEMBER, 2008. YOUR APPELLANT SUBMITS THAT THE ASSESSMENT SO MADE IS CONTRARY TO LAW AND JUDICIAL DECISIONS AND PRAYS THAT THE SAME BE CANCELLED. 2. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN NOT DI RECTING HE AO TO 5REDUCE THE AMOUNT OF SALES TAX SUBSIDY WHILE COMPU TING THE BOOK PROFITS U/S.115JB OF THE ACT DESPITE THE FACT THAT THE CIT(A) HAD HELD THAT THE SALES TAX SUBSIDY IS A CAPITAL RECEIPT AND THE ADDITION OF THE SAME WAS DIRECTED TO BE DELETED WHILE COMPUTING THE INCO ME OF THE APPELLANT UNDER THE NORMAL PROVISIONS OF THE ACT. 3. WITHOUT PREJUDICE TO GROUND NO.1 ABOVE, THE LD.A O ERRED IN FACT AND IN LAW MAKING ADJUSTMENT OF RS.88,90,959 TO THE BOOK PROFIT U/S.115JB ON THE GROUND THAT THE SALES TAX SUBSIDY RECEIVED BY THE APPELLANT IS REVENUE RECEIPT AND THEREFORE REQUIRED TO BE ADDED TO THE BOOK PROFITS. 15. NO ARGUMENT WAS ADVANCED BY THE LEARNED AR OF T HE ASSESSEE IN RESPECT OF FIRST GROUND OF APPEAL AND HENCE, WE INFER THAT THIS GROUND IS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND THEREFORE, GROUND NO.1 IS DISMISSED AS NOT PRESSED. ITA NO.1382 AND 2007 /AHD/2007 AND 3 OTHERS -9- 16. REGARDING REMAINING GROUNDS, IT WAS SUBMITTED T HAT THE ONLY ISSUE INVOLVED IS AS TO WHETHER THE SALES-TAX SUBSIDY IS REQUIRED TO BE REDUCED FROM THE BOOK PROFIT TO BE COMPUTED UNDER SECTION 115JB OF THE ACT. IT IS SUBMITTED THAT THIS ISSUE IS NOT DECIDED BY THE CIT(A) AND TH EREFORE, THE MATTER SHOULD GO BACK TO THE FILE OF THE CIT(A) FOR LIMITED PURPOSE OF DECIDING THIS ISSUE. THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT(A ). 17. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE T HROUGH THE MATERIAL ON RECORD. WE FIND THAT THIS ISSUE WAS VERY MUCH RAIS ED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) AS PER GROUND NO.5, BUT THERE IS NO DECISION OF THE LEARNED CIT(A) ON THIS ASPECT OF THE MATTER AND THEREFORE, WE DIRECT THE LEARNED CIT(A) TO DECIDE THE ABOVE GROUND RAISED BY THE ASSESSEE B EFORE HIM. THUS, THE GROUND NOS.2 AND 3 OF THE ASSESSEES APPEAL ARE ALLOWED FO R STATISTICAL PURPOSE. 18. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 19. NOW, WE TAKE UP THE REVENUES APPEAL FOR THE AS SESSMENT YEAR 2003- 2004. THE ONLY EFFECTIVE GROUND RAISED BY THE REVE NUE IN THIS YEAR READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN DELETING THE AMOUNT OF RS.88,89,959/- BEIN G SUBSIDY GIVEN BY THE STATE GOVERNMENT IN THE FORM OF SALES TAX DEFER MENT BEING THE AMOUNT ADDED BY THE AO TREATING IT AS REVENUE RECEI PT FOR THE REASON THAT SUBSIDY WAS NOT FOR FIXED ASSETS BUT WAS TO AU GMENT THE NORMAL BUSINESS RUNNING OF BINOLA UNIT AND WAS NOT FOR SET TING UP OF NEW INDUSTRIAL UNIT. 20. IT WAS AGREED BY BOTH THE SIDES THAT THIS ISSUE IS IDENTICAL TO THE GROUND NO.2 RAISED IN A.Y.2004-2005 AND THE SAME CAN BE DE CIDED ON THE SIMILAR LINE. IN A.Y.2004-2005, WE HAVE DECIDED THIS ISSUE AS PER PARA-11 (ABOVE) AND AS PER THE SAME, WE HAVE HELD THAT THE RECEIPT IN QUES TION IS CAPITAL RECEIPT BUT THE AO SHOULD PASS NECESSARY ORDER AS PER THE LAW ON TH IS ASPECT THAT THIS AMOUNT ITA NO.1382 AND 2007 /AHD/2007 AND 3 OTHERS -10- OF CAPITAL SUBSIDY IS REQUIRED TO BE REDUCED FROM T HE VALUE OF FIXED ASSETS FOR THE PURPOSE OF CALCULATING THE DEPRECIATION TO BE A LLOWED TO THE ASSESSEE. ACCORDINGLY, IN THIS YEAR ALSO, WE RESTORE THE ISSU E BACK TO THE FILE OF AO WITH SIMILAR DIRECTIONS. 21. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS PARTLY ALLOWED. 22. NOW, WE TAKE UP THE APPEAL OF THE REVENUE FOR A .Y.2005-06 AND 2006- 2007 I.E. ITA NO.1619/AHD/2008 AND 1383/AHD/2009. 24. IN BOTH THE YEARS, ONLY ONE ISSUE IS RAISED BY THE REVENUE I.E. REGARDING THE TREATMENT OF SUBSIDY GIVEN BY THE STATE GOVERNM ENT. BOTH THE SIDES AGREED THAT THIS ISSUE IN BOTH THE YEARS IS IDENTICAL TO T HE GROUND NO.2 OF THE REVENUE IN THE APPEAL FOR A.Y.2004-2005 AND THE SAME MAY BE DE CIDED ON THE SIMILAR LINES. 25. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. IN A.Y.2004-2005, WE HAVE DECIDED THIS ISSUE AS PER PA RA-11 (ABOVE) AS PER WHICH, WE HAVE HELD THAT THE RECEIPT IN QUESTION IS CAPITAL RECEIPT BUT THE AO SHOULD PASS NECESSARY ORDER AS PER THE LAW ON THIS ASPECT THAT THIS AMOUNT OF CAPITAL SUBSIDY IS REQUIRED TO BE REDUCED FROM THE VALUE OF FIXED ASSETS FOR THE PURPOSE OF CALCULATING THE DEPRECIATION ALLOWABLE T O THE ASSESSEE. ACCORDINGLY, IN THESE TWO YEARS, ALSO WE RESTORE THE ISSUE BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. 26. IN THE RESULT, ALL THE FOUR APPEALS OF THE REVE NUE AND REMAINING APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- MUKUL KR. SHRAWAT (JUDICIAL MEMBER) A.K. GARODIA (ACCOUNTANT MEMBER)
