ACIT Vs Genus Electrotech Limited (ITAT Delhi)
Held that sales tax incentive subsidy and excise duty incentive are in the nature of capital receipts and thus not chargeable to tax as regular income as well as income u/s 115JB for computation of book profit.
Facts-
In the order u/s 154, AO noted that assessee had shown net profit of Rs.10,71,44,263/- but had not shown any tax liability u/s 115JB of the Act and no tax was received under MAT. AO further noted that assessee had adjusted against profit, Debt Redemption Reserve of Rs.4,50,00,000/-. The income was assessed u/s 143(3) of the Act on 29.12.2009 for Rs.5,54,93,353/- after disallowing sales tax subsidy income credited as income in P&L account being capital receipts and treating the same as revenue receipts and central excise rebate refund. That further in the assessment year, claim of adjustment of Rs.4,50,00,000/- on account of Debt Redemption Reserve was disallowed provisionally while computing book profit. AO held that tax should have been levied on the book profit of Rs. 9,28,81,324/- u/s 115JB.
CIT(A) directed AO to grant relief to the appellant. Being aggrieved, revenue has preferred the present appeal.
Conclusion-
We note that the crux of the issue involved is that the sales-tax subsidy which has been treated as capital receipt on the direction of ld. CIT u/s 263 has been attributable to be relatable to the assets acquired and accordingly, depreciation against the so-called capital subsidy purchased as such has been denied. The ld. CITA’s order in this regard is quite appropriate as he has held that subsidy is given with reference to sales made and sale-tax benefit is given. Subsidy nowhere linked to cost of acquisition of the assets, hence there is no reason to make any deduction from the depreciation claimed. We find that the above reasoning is quite in consonance with the order of ITAT in this regard on the basis of which we have disposed off ITA Nos.9513, 9514, 9515 & 9516/Del/2019 as above. In the said decision, ITAT had categorically held that the same was a capital receipt and it had upheld the order of ld. CIT (A) and no view was expressed that the same is linked to capital assets acquisition, hence question of deduction in depreciation does not arise.
FULL TEXT OF THE ORDER OF ITAT DELHI
ITA NOS.9513, 9514, 9515 & 9516/DEL/2019
These are all appeals by the Revenue against the respective orders of the ld. CIT (Appeals).
2. The grounds of appeal are common except for change in figures. For the sake of reference, we are referring to ITA No.9513/Del/2019 and the grounds of appeal taken by the Revenue read as under :-
“1. On facts and circumstances of the case and in law, Ld. CIT(A) erred in deleting the additions on account of Sales Tax Subsidy of Rs.12,74,46,480/-, Excise Duty incentive of Rs.7,90,94,513/- and Debenture redemption Reserve of Rs.4,50,00,000/- made for the purpose of income computation u/s 115JB following the decision of Hon’ble ITAT in the case of the assessee for A.Yr. 2006-07 when the decision of Hon’ble ITAT has been challenged and is under the consideration of Hon’ble High Court.
2. On facts and circumstances of the case and in law, Ld. CIT(A) erred in deleting the additions on account of Sales Tax Subsidy of Rs.12,74,46,480/- and Excise Duty incentive of RS.7,90,94,513/- made for the purpose of income computation u/s 115JB in circumstances when these receipts have been received after commencement of production and are of revenue character and therefore have to be taxed accordingly as observed by Hon’ble Supreme Court in the case of Sahney Steel and Press Works Ltd. Vs CIT [228 ITR 253 (SC)], CIT Vs Bhushan Steel & Strips 3981TR 216 (Delhi) and CIT Vs Raasi Cements 351 ITR 169 (AP).
3. On facts and circumstances of the case and in law, Ld. CIT(A) erred in deleting the additions on account of Sales Tax Subsidy of Rs.12,74,46,4801- and Excise Duty incentive of Rs.7,90,94,513/- made for the purpose of income computation u/s 115JB in the circumstances when these receipts are of revenue character when examined from the angle of purpose test as observed by Hon’ble Supreme Court in the case of CIT Vs. Ponni Sugars & Chemicals Ltd. [306 ITR 392 (SC)].
4. On facts and circumstances of the case and in law, Ld. CIT(A) erred in deleting the addition of Rs.4,50,00,000/- on account of Debenture redemption Reserve in circumstances when the said amount is an appropriation towards reserve and therefore the same is to be added to the income of the assessee for computation of income for the purposes of Section 115J B as per provisions of I.T. Act.”
3. Brief facts of the case are that the assessee company filed its return of income for AY 2007-08 declaring loss of Rs.18,80,00,836/-. The income was assessed under section 143 (3) of the Income-tax Act, 1961 (for short ‘the Act’) at Rs.5,54,93,353/-. The ld. CIT (A) passed order on 28.10.2013. The order u/s 250 of the Act was passed on 10.12.2013 and the effect was given and income was revised to loss of Rs.18,80,00,836/-. The order u/s 154 of the Act was passed by the AO on 22.03.2016 calculating the book profit of Rs.9,28,81,324/-. In the order u/s 154, AO noted that assessee had shown net profit of Rs.10,71,44,263/- but had not shown any tax liability u/s 115JB of the Act and no tax was received under MAT. AO further noted that assessee had adjusted against profit, Debt Redemption Reserve of Rs.4,50,00,000/-. The income was assessed u/s 143(3) of the Act on 29.12.2009 for Rs.5,54,93,353/- after disallowing sales tax subsidy income credited as income in P&L account being capital receipts and treating the same as revenue receipts and central excise rebate refund. That further in the assessment year, claim of adjustment of Rs.4,50,00,000/- on account of Debt Redemption Reserve was disallowed provisionally while computing book profit. Finally, the AO held as under:-
“After taking necessary approval, a notice u/s 154 was issued on the assessee specifying the mistake that is proposed to be rectified. The assessee submitted its reply, in which it relied on the observation of Ld CIT(A) with respect to an order of AY 2012-13. The reply of the assessee was considered and not found tenable.
The scrutiny of the records revealed as per profit and loss account the profit before tax (PBT) of the assessee company was Rs. 10,71,44,263 /-. It was observed the adjustment relating to sales tax incentive subsidy income and excise rebate refund does not fall in any category of adjustment provided u/s 115t~ .of the Act. Thus the book profit was required to be taken at Rs. 9,28,81,324/-, while assessing income u/s 115JB of the Act in the assessment order, which was not done.
The figure is arrived as :-
