Case Law Details
Indogulf Cropsciences Ltd. Vs ACIT (ITAT Delhi)
ITAT Delhi held that as receipt of an interest subsidy received under the scheme is not income at all and hence the same has to be excluded while computing book profits under section 115JB of the Income Tax Act.
Facts-
The assessee company is having a unit in Jammu & Kashmir on which deduction u/s 80IC has been claimed. During the assessment proceedings, AO gathered that the assessee has received an excise refund amounting to Rs. 6,76,32,413/- and an interest subsidy amounting to Rs. 32,77,053/- which have been claimed as capital receipts.
AO held that the scheme of Section 115JB of the act does not permit for exclusion of capital receipts (excise refund and interest subsidy) as done by the assessee while computing the book profits for Section 115JB of the Act and accordingly recomputed the profit for Section 115JB of the Act at Rs. 12,20,88,089/-.
Conclusion-
Hon’ble Karnataka High Court in the case of B&B Infratech Ltd. vs. Income Tax Officers has held that provisions of Section 115JB are a complete code in itself and the increase or reduction of income is permissible only to the extent provided under the explanation to the said section.
Held that since a receipt is not like income at all, it cannot be included in book profit for computation u/s 115JB and held that interest in power subsidy under the scheme has to be excluded while computing book profits u/s 115JB.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal has been filed by the Assessee against order dated 22.09.2017 in appeal no. 251/16-17, New Delhi in assessment year 2014-15 passed by Commissioner of Income Tax (Appeals)- 35, New Delhi (hereinafter referred to as the First Appellate Authority or in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 16/11/2016 u/s 143(3) of the Income Tax Act, 1961 passed by ACIT, Special Range-04, New Delhi (hereinafter referred to as the Assessing Officer ‘AO’).
2. The facts in brief are the assessee company is engaged in the business of manufacturing of agro chemicals, pesticides etc. The assessee company is having a unit in Jammu & Kashmir on which deduction u/s 80IC has been claimed. During the assessment proceedings, Ld AO gathered that the assessee has received excise refund amounting to Rs. 6,76,32,413/- and interest subsidy amounting to Rs. 32,77,053/- which have been claimed as capital receipts. The assessee submitted that these incentives were given with the objects to achieve development of industries and generation of employment in the specified areas of Jammu & Kashmir. The assessee further submitted that the issue regarding the nature of these receipt has been examined by the Hon’ble High Court of Jammu & Kashmir in the case of Shri Balaji Alloys wherein the Hon’ble High Court has held that these receipts nature because the purpose of these incentives is for creating the avenues for The assessee accordingly submitted that these incentives are capital receipt and the same has also been accepted by the Department in the assessment year 2013-14.
3. The Ld. AO held that the scheme of Section 115JB does not permit for exclusion of capital receipts (excise refund and interest subsidy) as done by the assessee while computing the book profits for the purpose of Section 115JB of the Act and accordingly recomputed the profit for the purpose of Section 115JB of the Act at Rs. 12,20,88,089/-.
4. The Ld. CIT(A) observed in para no. 4.3.3. as follows :-
“4.3.3 The submissions of the appellant, the case laws cited and the relevant orders have been considered. The appellant is engaged in the business of manufacturing of Agro Chemical, Insecticides and set-up manufacturing unit (‘unit’) at Samba in the state of Jammu & Kashmir. The said unit being in a notified area is entitled for the benefit of excise duty refund in accordance with the Excise Notification Nos.56/57, dated 14/11/2002 issued by the Central Excise Department, under the scheme/policy of the Government of India, Ministry of Commerce & Industry. The Appellant has submitted that the Company had stated in the Notes forming part of accounts that the said receipts is not includible for computing book profit u/s 115JB of the Act, even though it is credited to Profit and Loss account. The Appellant further contended that the Appellant company has rightly reduced ‘ Capital Receipts’ of Rs. 7,08,09,466/- for working out Book Profit since the same is completely exempt from Income Tax.
It is seen that these incentives has been credited by the Appellant Company to the P&L account. While filing the return of income, the Appellant Company has excluded these incentives from the book profit by claiming as exempt. The AO has discussed in detail the reasons for the addition and it is clearly established that the scheme of section 115JB does not permit for exclusion of capital receipt (excise refund and interest subsidy) as done by the Appellant Company while computing the book profit for the purpose of section 115JB of the Act. The case laws relied upon by the Appellant have been considered and are distinguishable in facts. Hence, there is no reason to interfere with the AO’s order on this issue.
Book profit for the purpose of section 115JB as assessed by the AO at Rs. 12,20,88,089/- is upheld. Appeal on this ground is dismissed.
5. Now assessee is in appeal raising following grounds :-
“1. That on the facts and circumstances of the case, the Ld. CIT(A)-35, New Delhi, has erred both in law and on the facts of the case in confirming the book profit assessed/worked out by the Ld. AO which is bad in law, illegal, unjustified, uncalled for and arbitrary and as such liable to be set-aside.
2. That the Ld. CIT(A)-35, New Delhi has erred both on facts and in law in not allowing to reduce capital receipts from the Book Profit in utter disregard to the fact that the Capital Receipts are excluded for the purpose of calculating normal income tax by the A. A. and as such the action of the Ld. CIT(A) on confirming the action of the AO is against the Principle of Natural Law of Justice, Equity and Fair Play and also the very provision of the law.
3. That the Ld. CIT(A) has erred both in law and on the facts of the case in confirming the total book profit of Rs. 12,20,88,089/-as against a sum of Rs.5,12,78,78,623/- declared in Return filed by the Appellant in an arbitrary and uncalled for manner.
4. That the Appellant company has rightly reduced ‘Capital Receipts’ of Rs. 7,08,09,466/- for working out Book Profits since the same is completely exempt and not liable for income tax and as such, the action of the Ld. CIT(A)-35, N. Delhi in confirming the action of the Ld. A.A. is unjustified, illegal, arbitrary and against the principle of natural justice.
5. That the provisions of MAT are applicable to the Appellant company and since the Excise Duty Refund and Interest Subsidy has been considered as Capital Receipts, therefore, the same was deducted from the book profit while working out the tax liability under the provision of Section 115JB of the IT Act.
5. That the Capital Receipts already accepted by the Hon’ble Supreme Court cannot be form part of book profits even if it is credited to the P&L A/c prepared in terms of Part-II & III, Schedule-VI of the Companies Act. Alternatively, since the said profit does not fall under the definition of income at all and since it does not enter into computation provision at all, there is no question of including the same in the book profit as per the provision of Section 115JB of the Act.
6. That the Capital Receipts (such as Subsidy etc.) which have no element, have to be excluded from the book profits even if it is credited to the P&L A/c. The genesis of Sec. 115 J, thereafter section 115JA and now section 115JB was to ensure that the assessee, while making profit from operations, should not enjoy tax free status due to various deductions available under the Income Tax Act. There was never any intention of the legislature to tax what is not income at all. In a recent decision, the Hon’ble Apex Court in the case of Indo Rama Synthetics (I) Ltd. Vs. CIT (2011) 330 ITR 363 (SC) has held that the object of MAT provisions is to bring out the real profit of the companies. The thrust is not to find out the real working results of the company. Inclusion of receipt in the computation of MAT would defeat two fundamental principles, it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. The real working result can be arrived at only after excluding this receipt which has been credited to P&L a/c and not otherwise.
7. That the order passed by the Ld. DCIT and confirmed by the CIT(A) and subject matter of present appeal, is an arbitrary and biased order rather than legal, judicious and rationale, stands vitiated and as such liable to be set-aside.
8. That in the case of Dynamic Orthopaedic Pvt. Ltd. Vs. CIT, Cochin, Kerala, the Hon’ble Supreme Court has already referred the matter to a larger Bench to reconsider the issues decided on the same/similar facts earlier.
9. That the Appellant company craves leave to add, to amend, to alter and/or withdraw any of the grounds of appeal either before or at the time of hearing of the appeal.
6. Heard and perused the record.
7. On behalf of the assessee it was submitted that capital receipts are not to be included in computation of book profits and reliance in this regard was placed on the judgment of Co-ordinate Bench in M/s. Insecticides (India) Ltd. vs. DCIT and the judgment of Calcutta High Court in Ankit Metal and Power Ltd. 2019 (7) TMI 878. It was submitted that this judgment of Hon’ble Calcutta High Court have been followed in the pronouncements as well :
ii. SRF Limited vs. Asstt. CIT, Circle-1 LTU New Delhi, 2022 (2) TMI 758 – ITAT Delhi, Dated.- February 7, 2022
vi. Jindal World Wide Ltd. Vs. ACIT, Circle-2 (1) (2), Ahmedabad, 2020 (12) TMI 439 – ITAT Ahmedabad – Dated.- November 24, 2020
vii. M/s. Ramgad Minerals & Mining Ltd. Vs. ACIT Circle – 1, Bellary, 2020 (11) TMI 174 – ITAT Bangalore – Dated.- November 4, 2020
viii. M/s. Maithan Steel & Power Ltd. Vs. Principal Commissioner of Income Tax, Kolkata, 2020 (3) TMI 114 – ITAT Kolkata – Dated.- February 26,2020
8. On the other hand, Ld. DR relied judgment of Hon’ble Karnataka High Court in B & B Infratech Ltd. vs. Income Tax Officer, Ward 12(1), Bangalore (2016) 76 com 188 to contend that Hon’ble High Court was considering the question, “Whether the profit shown in the books of account for the purpose of taxable liability as per the provisions of Section 115-JB of the Income-tax Act, 1961 can be altered on any subject or item which otherwise is not falling in the Explanation to Section 115JB of the Act ?”and has observed that provisions of Section 115JB is a complete code in itself and the increase or reduction of income is permissible only to the extent provided under the explanation to the said section and following the judgment of Hon’ble Supreme Court of India in Appollo Tyres Ltd. vs. CIT [2002] 255 ITR 273/122 taxman 562 had held that the Tribunal in that case had not committed any error while characterizing both capital receipts and revenue receipts in a like manner for the computation of book profits u/s 115JB of the Act.
9. Giving thoughtful consideration to the matter on record and the submissions made before the Bench it can be observed that on the basis of judgment of Hon’ble Karnataka High Court in B & B Infratech Ltd. (supra) that Hon’ble Karnataka High Court was dealing with the matter where an amount of Rs. 43,00,000/- pertaining to remission of liability under one time settlement of outstanding loan with ING Vysya Bank was the disputed income which was included by the assessee in its P & L account as income and which the assessee wanted to exclude for the purpose of computing book profits u/s 115JB of the Act.
9.1 However, in the case in hand the issue revolves around the capital receipts of the nature excise duty refund and interests subsidy which without any doubt are receipts of capital nature. Hon’ble Calcutta High Court in the case of Ankit Metal and Power Ltd. (supra) was directly dealing with the question whether the incentives received from the Government for setting up power plant in the backward regions of West Bengal are to be included for the purpose of computation of book profits u/s 115JB and after taking into consideration the judgment of Hon’ble Supreme Court in Appollo Tyres Ltd. (supra) observed that the income in question, in that case was taxable but was exempt under specific provision of the Act, as such it was to be included as a part of book profit. But since a receipt is not in the nature of income at all, it cannot be included in book profit for the purpose of computation u/s 115JB and accordingly held that interest in power subsidy under the scheme have to be excluded while computing book profits u/s 115JB.
9.2 The Co-ordinate Bench in M/s. Insecticides (India) Ltd. (supra)while dealing with question and treatment of capital receipts in computation of profit u/s 115JB had relied judgment of Hon’ble Calcutta High Court in Ankit Metal and Power Ltd. (supra) and Co-ordinate Bench decision in SRF Ltd. vs. ACIT, Circle -1 2022(2) TMI 758 ITAT Delhi judgment dated 07.02.2022, and had held that since the receipt is not in nature of income, then it cannot be considered in the book profits for the purpose of computation u/s 115JB of the Act.
10. In the light of aforesaid it can be held that Appellant company has rightly reduced Capital Receipts of the nature excise refund and interest subsidy for working out Book Profits. The grounds are allowed. The appeal is allowed and accordingly the Ld. AO is directed to re-compute the income.
Order pronounced in the open court on 13th October, 2022.
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