Jindal Steel & Power Limited Vs Addl. CIT (ITAT Delhi)
Facts in brief are that the assessing officer has, in the assessment order, while holding the impugned subsidy as revenue receipt, simultaneously reduced the same from cost of fixed assets, while applying provisions of Explanation 10 to section 43(1) of the Act resulting in double taxation of same amount of subsidy.
It has been submitted by the assessee that even assuming, without admitting, that the subsidy received is a revenue receipt, the action of the assessing officer in reducing such subsidy from cost of fixed assets by applying the provisions of Explanation 10 to section 43(1) of the Act is patently erroneous as the same resulted in double taxation of the very same amount, viz., (i) by bringing the amount received to tax as income; and (ii) by reducing the claim of depreciation on account of reduction of the very same amount from the cost of the depreciable assets. Ld. Counsel submitted that the assessing officer, , cannot blow hot and cold in the same breadth and, therefore, the action of the assessing officer in making reduction of the amount of subsidy from the cost of fixed assets was not called for and accordingly rightly reversed by the CIT(A).
Further, if its to be held that the subsidy received is in the nature of capital receipt, even then, provisions of Explanation 10 to section 43(1) of the Act are not applicable, for the following reasons:
> Explanation 10 to section 43(1) of the Act, only applies in a case where any portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government/ State Government/ any other authority/ any other person in the form of subsidy or grant or reimbursement, etc. The said Explanation 10 reads as under:
“………
Explanation 10.-Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee:
Provided that where such subsidy or grant or reimbursement is of such nature that it can not be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.
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On perusal of the aforesaid, it is patently clear that only in a situation where subsidy received by the assessee is intended to meet the cost of an asset acquired by the assessee; such subsidy is required to be adjusted against the actual cost of the asset for the purposes of section 28 to 41 of the Act.
It was submitted that the provisions of aforesaid Explanation are attracted where the purpose behind the grant of subsidy by the Government is to meet the cost of asset, i.e. incentivize an assessee to purchase an asset or to make capital investment and not otherwise. On the other hand, if the purposes of the subsidy are to achieve the larger object of public interest, like, industrialization of the backward state, employment generation, etc., such subsidy is not required to be reduced from the cost of assets in terms of Explanation 10 to section 43(1) of the Act.
DR supported the order of the Assessing Officer and pointed out that the nature and manner in which subsidy was received is nothing but for acquisition of assets.
After considering the aforesaid facts as well as order of the AO and ld. CIT (A), we find that if the purpose of subsidy was for industrialization of the backward state, employment generation, etc. and is in the form of capital nature, such subsidy is not required to reduced from the cost of asset u/s 10 to section 43(1) of the Act. Hon’ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. reported in 210 ITR 830 has observed that in that case, the assessee had received a capital subsidy, which was claimed as capital receipt, not exigible to income-tax. In the assessment proceedings, the assessing officer held that such subsidy is liable to be reduced form the cost of assets, in terms of the provisions of section 43(1) of the Act. The appeal preferred by the appellant before the Commissioner of Income-tax (Appeals) was dismissed. The Tribunal, however, allowed the assessee’s claim. The Hon’ble High Court decided the matter in favour of the Revenue. On further appeal preferred by the assessee, the Hon’ble Supreme Court reversed the decision of the Hon’ble High Court and decided the issue in favour of the assessee. The relevant observations of the Supreme Court are as under:
“……………
The question in the present context is not whether if a portion of the cost is met directly or indirectly by any other person or authority, it should be deducted or not. Quite obviously, the plain meaning of the section is that it shall be. But the real question is as to the character and nature of a subsidy whether it was really intended to subsidise the cost of the capital or was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost which is the basis for determining the subsidy being only a measure adopted under the scheme to quantify the financial aid. The contention is that it is not a payment, directly or indirectly, to meet any portion of the “actual cost” but intended as an incentive to entrepreneurs, its quantification determined at a percentage of the fixed capital cost.
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The Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the “actual cost”. We should prefer the reasoning of the majority of the High Courts to the one found acceptable by the High Court of Punjab and Haryana.” (emphasis supplied)
Though the aforesaid decision was rendered prior to the insertion of Explanation 10 in section 41(1), however, same principle would apply in the present case as subsidy was granted to the assessee to incentivize the industries in the backward areas to provide employment and such subsidy was not granted directly or indirectly for compensating the fixed assets, therefore, the same cannot be adjusted against the cost of assets.
FULL TEXT OF THE ORDER OF ITAT DELHI
These eight cross appeals, four by the assessee and four by the Revenue are filed for assessment years 2003-04, 2006-07, 2007-08 and 2008-09. These were heard together and are being disposed of, for the sake of convenience, by this common order.
2. First, we take up assessee’s and Revenue’s appeal for Assessment Year 2003-04 bearing ITA Nos.167/Del./2009 & 220/Del/2009 respectively.
ITA No.167/Del./2009 (AY 2003-04)
FILED BY THE ASSESSEE
3. Aforesaid appeal has been filed by the assessee against the impugned order dated 11.11.2018 passed by the ld. CIT (Appeals), Rohtak of the Income-tax Act, 1961 (for short ‘the Act’) for the quantum of assessment passed under section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) for the Assessment Year 2003-04.
4. In the grounds of appeal, the assessee has taken the following grounds:-
“1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in not adjudicating on the claim for exemption of sales tax, entry tax and electricity duty subsidy amounting to Rs. 11,10,63,938 in the absence of previous such claim in the original or a revised return without appreciating the fact that the subject claim is legal in nature and has universal application in earlier as well as in the succeeding years.
2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in partly disallowing expenditure incurred on aircraft, to the extent of Rs.1,10,607 alleging that the same was expended for non-business purposes.
3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in setting aside the issue regarding disallowance of commission amounting to Rs.6,55,809, paid to Ganesh Rolling Mills Ltd., without appreciating that complete evidence was placed on record before the assessing officer during assessment proceedings.
3.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in directing the assessing officer to allow the above commission expenditure only if the assessee produces satisfactory identity of the payee, services rendered and legitimate business need, without appreciating that complete evidence to this effect was filed before the assessing officer/ CIT(A).
4. That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in charging interest under section 234B of the Act. “
Additional Grounds:
Section 80HHC
“That on the facts and circumstances of the case and in law the assessing officer may kindly be directed to allow deduction of Rs. 34,90,377, instead of Rs. 17,45,188 as claimed in the original return of income, while computing ‘book profits’ in terms of clause (iv) of Explanation 1 to section 115JB of the Act.
1. That on the facts and circumstances of the case and in law the assessing officer erred in restricting the deduction of export profits allowable in terms of clause (iv) of Explanation 1 to section 115JB of the Act to the extent specified in section 80HHC even while computing ‘book profits’
1.1 That the assessing officer failed to appreciate that the entire export profits are allowable as deduction while computing ‘book profits’ under section 115JB and the same are not required to be restricted to the extent specified in sub section (1B) of the section 80HHC of the Act.
That the assessing officer failed to appreciate that the entire export profits are allowable as deduction while computing ‘book profits’ under section 115JB and the same are not required to be restricted to the extent specified in sub section (1B) of the section 80HHC of the Act.
Deduction of Additional Coal Levy :
That on the facts and circumstances of the case and in law, additional coal levy relatable to year under consideration amounting to Rs.62,42,42,420 paid on account of extraction of coal pursuant to the order(s) of the Hon’ble Supreme Court, be directed to be allowed as business deduction.”
GROUND NO.1
5. Insofar as, issue raised in ground no.1, ld. counsel for the assessee stated following facts and background of the case as culled out from the records :-
5.1 The assessee from the year 2000 onwards had setup new industrial units entailing an investment exceeding Rs.1,000 crores at Raigarh, which is a backward and tribal area of the then State of Madhya Pradesh. The said units included, inter-alia, the following:
