IN THE ITAT AMRITSAR BENCH (SPECIAL BENCH)
Vinod Kumar Jain
Income-tax Officer-Ward-1(3), Jammu
IT Appeal NoS. 65 & 68 (Asr.) of 2010
[Assessment year 2006-07]
OCTOBER 26, 2012
1. The Hon’ble President of the Tribunal has referred the following questions for consideration of the Special Bench vide order dated 26.04.2010.
(i) “Whether in the facts and circumstances of the case, the excise duty refund set off is a capital receipt or revenue receipt.
(ii) If the excise duty refund/set off is held to be revenue receipt, whether the said amount is to be included in the business profits for the purpose of deduction u/s 80IB of the Income Tax Act.”
2. The Ld. counsel of the assessee, Sh. Salil Kapoor, filed a chart and pointed out that originally in assessment year 2005-06, the assessee had claimed deduction under section 80IB of the Income-tax Act, 1961 (In short, ‘the Act’) on the refund of excise duty, which was not allowed by the A.O. By the time, the matter travelled to the Tribunal an additional ground was raised stating that refund of excise duty should be treated as capital receipt. Though the additional ground was admitted but the whole matter was decided against the assessee and the matter travelled before the Hon’ble Jammu & Kashmir High Court and the same was decided in favour of the assessee in the case of Shree Balaji Alloys v. CIT  333 ITR 335. By reference to various documents, he showed that the assessee’s appeal was also tagged in this bunch of appeals vide ITA No.24 of 2010 by the High Court. Therefore, even assessee’s case was decided in favour of the assessee. He further pointed out that in assessment years 2007-08 & 2008-09, the Tribunal following the order of the Hon’ble Jammu & Kashmir High Court, in the case of Shree Balaji Alloys (supra) dismissed the Revenue’s appeal on this issue in ITA No.233(Asr)/2011 & in ITA No.408(Asr)/2011 dated 09/12/2011 & 13/12/2011 respectively (copies of both the orders have been filed at pages 112 to 138 of the PB). He also pointed out that Revenue moved a Miscellaneous Application before the Hon’ble J & K High Court, against the orders in case of Shree Balaji Alloys (supra) (where assessee was also a party) which was also dismissed by the Hon’ble Court vide order dated 04.04.2012 (copy of which is filed at pages 102 to 111 of the paper book). The Ld. Counsel of the assessee further argued that the issue is identical to the issue decided by the Hon’ble J & K High Court and even Special Bench of the Tribunal is bound by the decision of the Hon’ble Jurisdictional High Court of J & K. He also clarified that since assessee’s industrial unit is situated in Jammu and he is also being assessed to tax at Jammu, therefore, the decision of the Hon’ble Jammu & Kashmir High Court, has to be treated as Jurisdictional High Court decision.
3. On the other hand, the Ld. DCIT(DR), Mr. Tarsem Lal, submitted that S.L.P. against the decision of the Hon’ble J & K High Court in the case of Shree Balaji Alloys (supra) has been admitted by the Hon’ble Supreme Court on 18.11.2011 [CC17898/2011] arising out of the decision of the Hon’ble J & K High Court in ITA No. 2 of 2010 and therefore, the matter should be decided accordingly.
4. We have considered the rival submissions carefully in the light of material on records as well as decisions cited by the parties. In this case, assessee had received excise duty refund amounting to Rs.19,98,09,716/-and has claimed deduction u/s 80IB of the Income-tax Act, 1961 on the income corresponding to the receipt of the said refund. The AO after detailed discussion rejected the claim of the assessee. On appeal, additional ground was taken before the ld. CIT(A) that receipt of excise duty refund should be considered as capital receipt.. The Ld. CIT(A), after considering the additional ground decided this issue against the assessee by following the decision of the ITAT, Amritsar Bench, Amritsar, in the case of Shree Balaji Alloys v. ITO [IT Appeal No.255 (Asr) of 2009, dated 26-11-2009] and in the case of Ravenbhel Healthcare (P.) Ltd. v. ITO, Ward 1(2), Jammu, [ITA No. 305(Asr)/2009, dated 26.11.2009] by observing that the Tribunal has considered all the aspects of the issue. It is observed that assesse’s unit is located in Jammu and assessee is also being assessed to tax in Jammu, therefore, the decision of Hon’ble J & K High Court in the case of Shree Balaji Alloys (supra) (where even assessee was also one of the party) has to be treated as decision of Jurisdictional High Court, which is binding on us. No doubt, the Hon’ble Supreme Court, has admitted the SLP against this decision vide order dated 18.11.2011, but no stay has been granted against the operation of the order of J & K High Court. Therefore, in our considered opinion, the decision of the Hon’ble J & K High Court in the case of Shree Balaji Alloys (supra), is squarely applicable. A careful perusal of this judgment shows that the Hon’ble J & K High Court has discussed the nature of scheme in detail and the decisions of Hon’ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT  228 ITR 253 and CIT v. Ponni Sugars & Chemicals Ltd.  306 ITR 392 and observed as under:Online GST Certification Course by TaxGuru & MSME- Click here to Join
“26 A perusal of the Office Memorandum dated June 14, 2002 indicating new industrial policy and other concessions for the State of Jammu and Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz. (i) acceleration of industrial development in the State of Jammu and Kashmir, which had been found lagging behind in such development, and (ii) generation of employment in the State of Jammu & Kashmir.
27. Amendment introduced to the Office Memorandum vide notification of November 28, 2003 of the Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) eloquently demonstrates the Central Government’s intention in extending the incentives. The Government’s objective, as conveyed by the Hon’ble Prime Minister a Srinagar on April 19, 2003, was, for creation of one lakh employment and self-employment opportunities in Jammu and Kashmir State.
28. To achieve the purpose and objective referred to hereinabove, it was, inter alia, provided in the central excise notifications that the exemptions contained in the notifications would be available only on production of certificate from general manager of the concerned District Industries Centre to the jurisdictional Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, to the effect that the unit had created required additional regular employment, which would not, however, include employment provided by the industrial units to daily wagers or casual employees engaged in the units.
29. A close reading of the Office Memorandum and the amendment introduced thereto with paragraph No. 3 appearing in the Central Excise Notification Nos. 56 and 57 of November 11, 2002, thus, makes it amply clear that the acceleration of development of industries in the State was contemplated with the object of generation of employment in the State of Jammu and Kashmir and the generation of employment, so, contemplated, was not only casual or temporary; but was on the other hand, of permanent nature.
30. Considered thus, the paramount consideration of the Central Government in providing the incentives to the new industrial units and substantial expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment in the State, additionally creating opportunities for self-employment, hence a purpose in public interest.
31. In this view of the matter, the incentives provided to the industrial units, in terms of the new industrial policy, for accelerated industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional permanent source of employment to the unemployed in he State of Jammu and Kashmir, were in fact, in the nature of creation of new assets of industrial atmosphere and environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assesses alone.
32. Thus, looking to the purpose, of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in industrial development, which is certainly a purpose in the public interest, the incentives provided by the office memorandum and statutory notifications issued in this behalf, to the appellants-assessees, cannot be construed as mere production and trade incentives, as held by the Tribunal.
33. Making of additional provision in the scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of new assets cannot be viewed in isolation, to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bona fide industrial units so that larger public interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum, was achieved.
34. The other factors, which had weighed with the Tribunal in determine the incentives as production incentives may not be decisive to determining the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for perpetual employment, to eradicate the social problem of unemployment in the State by accelerated industrial development.”
5. On the basis of the above observations, the Hon’ble J & K High Court has held as under:
“35 For all what has been said above, the finding of the Tribunal on the first issue that the excise duty refund, interest subsidy and insurance subsidy were production incentives, hence revenue receipt, cannot be sustained, being against the law laid down by the Hon’ble Supreme Court of India in Sahney Steel Case  228 ITR 253 and Ponni Sugars case  306 ITR 392.
36 The finding of the Tribunal that the incentives were revenue receipt is, accordingly, set aside holding the incentives to the capital receipt in the hands of the assesses.”
6. In view of the above decision, which is binding in nature on this Special Bench, as observed earlier, we hold that refund of excise duty is to be treated as capital receipt in the hands of the assessee. Accordingly, the first question is decided in favaour of the assessee.
7.In respect of second question, it was observed by the Hon’ble J & K High Court at para 37, as under:
“37. In view of our above finding on the first issue, there is no need to opine on the second issue, which was raised in the alternative.”
8. Therefore, in view of the above observations and the fact that once refund of excise duty is held to be of capital nature then there is no need to decide the second question.
9. During hearing it was further observed that in this appeal basically dispute was in respect of nature of excise duty refund, which has been referred to the Special Bench by the Hon’ble President of the Income Tax Appellate Tribunal. But there is another issue which has also been raised vide ground No.6, which reads as under:
“6. That the charging of interest u/s 234-B at Rs. 2,21,75,951/- is arbitrary, unjust & illegal on various factual & legal grounds.”
10. The issue raised in above ground was not referred to the Special Bench. But since Special Bench consists of Hon’ble President, who in exercise of his powers under section 255(3) of the Act, obtained consent of the parties for adjudication of issue raised in ground No.6 because same was of consequential nature so as to dispose off appeal as such. Both the parties consented that this issue being of consequential in nature may also be decided by the Special Bench.
11. We have heard both the parties and found that the issue raised in ground No.6 is only consequential in nature and therefore, we hold accordingly.
12. Now, we take up appeal of the assessee in ITA No.68(Asr)/2010. In this case, the assessee had received excise duty refund amounting to Rs.1,07,46,677/- and claimed deduction u/s 80IB on this amount, which was rejected by the A.O. and on appeal the order of A.O. was confirmed by the Ld. CIT(A) by following the decision of the Tribunal in the case of Shree Balaji Alloys (supra) and Ravenbhel Healthcare (P.) Ltd.’s case (supra). Since in this appeal, only dispute involved is regarding nature of excise duty refund and that issue has been referred to the Special Bench, which has been adjudicated by us, in the above noted paras. Following the above decision, we decide this issue in favour of the assessee holding that Excise Duty Refund is to be treated as capital receipt.
13. As far as second question is concerned, in view of our earlier decision in the above noted appeal at paras 7 & 8 since refund of excise duty has been held to be of capital nature, therefore, there is no need to decide the second question.
14. In the result, the appeals of both the assessees in ITA Nos. 65 (Asr)/2010 & 68(Asr)/2010 are allowed in terms indicated above.