Case Law Details
DCIT Vs Emami Agrotech Limited (ITAT Kolkata)
Conclusion: Sales Tax subsidy received for expansion of assessee’s existing industry was capital in nature as the purpose of the same was for the expansion of the existing industry of assessee. Moreover, the amounts which were not taxable in the normal computation could not be included while computing the book profit because such amounts did not really reflect a receipt in the nature of income and could not form part of the book profit.
Held: Assessee had obtained incentive in the form of Sales Tax assistance in A. Y. 2013-14 as Industrial Promotional Assistance (IPA) under “The West Bengal Incentive Scheme (WBIS) 2004” issued vide Notification No. 134-CI/O/ Incentive/17/03/I dated 24.03.2004. The said incentive had been granted to encourage additional investments for setting up and/or expansion and modernization of the industrial undertaking located at the respective place to accelerate the development of the backward area of the State and to create large scale employment opportunities. The company had received sales tax assistance, being capital receipt, for expansion of existing industrial undertaking involving huge capital outlay. The above incentives were set off against sales tax liability payable to Government and accordingly credited to profit and loss account in the books of accounts. Since the said incentives had been granted with the objective of setting up of industries in backward areas, the amount equivalent to sales tax exemption, availed during the year, would constitute capital receipts in the hands of the appellant and should not be taxable. However, while filing original as well as revise return of income, by an inadvertent error, the above amount being capital receipt which was credited to P&L was not excluded from computation of total income under the normal provisions as well as not excluded from Book Profit under section 1 15JB and had been offered to tax. The same was considered and excluded from Computation both under normal provision and under u/s 115JB through letter of modification in the return of income on 12.08.2015. AO did not accept the contention of assessee that the sales tax assistance given by State govt. as incentive was a Capital Receipt and not taxable, and he held it as a revenue receipt and did not allow the claim of assessee. It was held that subsidy in question received by assessee in the form of refund of sales tax under the West Bengal Incentive Scheme, 2004 was capital in nature as the purpose of the same was for the expansion of the existing industry of the assessee. Merely because the said subsidy was to be received by assessee only after the commencement of production would not change its character, which otherwise was capital in nature. Moreover, the amounts which were not taxable in the normal computation could not be included while computing the book profit because such amounts did not really reflect a receipt in the nature of income and could not form part of the book profit.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the Revenue against the separate order of the Ld. Commissioner of Income Tax(Appeals)-4, Kolkata dated 19.09.2019 and 20.09.2019 respectively for assessment year 2013-14 and 2014-15 respectively.
2. Ground nos. 1 and 2 are as under:
1. “That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in allowing government subsidy by treating the same as capital in nature Rs.43,08,97,000/- under normal provision of the Act.
2. That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in allowing government subsidy by treating the same as capital in nature Rs.43,08,97,000/- under provision of section 115JB of the Act.”
3. The aforesaid grounds are regarding the deletion of government subsidy treating the same as revenue in nature of Rs.43,08,97,000/-.
4. Brief facts as per the assessee which has been taken by the Ld. CIT(A) which is as under:
“1.1 The respondent has obtained incentive in the form of Sales Tax assistance of Rs.29,40,26,606/- in A. Y. 2013-14 as Industrial Promotional Assistance (IPA) under “The West Bengal Incentive Scheme (WBIS) 2004” issued vide Notification No. 134-CI/O/ Incentive/17/03/I dated 24.03.2004. The said incentive has been granted to encourage additional investments for setting up and/or expansion and modernization of the industrial undertaking located at the respective place to accelerate the development of the backward area of the State and to create large scale employment opportunities. The company has received sales tax assistance, being capital receipt, for expansion of existing industrial undertaking involving huge capital outlay. Similarly, company has also set up a new plant at Krishnapatnam, Andhra Pradesh and is eligible for incentives in the form of sales tax incentive, etc as per the scheme of Andhra Pradesh Gout. known as “Industrial Investment Promotion Policy (IIPP) 2010-2015” of Rs. 13,68,70,416/- for its new unit involving huge capital outlay.
1.2 The above incentives were set off against sales tax liability payable to Government and accordingly credited to profit and loss account in the books of accounts. Since the said incentives have been granted with the objective of setting up of industries in backward areas, the amount equivalent to sales tax exemption, availed during the year, would constitutes capital receipts in the hands of the appellant and should not be taxable. However, while filing original as well as revise return of income, by an inadvertent error, the above amount being capital receipt which was credited to P&L was not excluded from computation of total income under the normal provisions as well as not excluded from Book Profit under section 1 15JB and has been offered to tax. The same was considered and excluded from Computation both under normal provision and under u/s 115JB through letter of modification in the return of income on 12.08.2015.”
5. The A.O did not accept the contention of the assessee that the sales tax assistance given by the State govt. as incentive is a Capital Receipt and not taxable, and he held it as a revenue receipt and did not allow the claim of the assessee.
6. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who deleted the addition by taking note of the orders of his predecessor for A.Y 2011-12 wherein the Ld. CIT(A) has held that sales tax incentive enjoyed by the assessee was for setting up industry in the backward areas in the State and hence it is a Capital Receipt not taxable as per the provisions of the Act. Thereafter the Ld. CIT(A) followed the view of his predecessor for A.Y 2011-12 and gave relief to the assessee.
7. Aggrieved the Revenue is before us. We have heard both the parties and perused the records. At the outset, the Ld. AR of the assessee brought to our notice that in assessee’s own case for A.Y 2011-12, the Tribunal has decided this issue in its favour and referred to page 49 to 75 of the PB. It was also pointed out by the Ld. AR that earlier the assessee’s name was M/s Emami Biotech Ltd and it got changed M/s Emami AgrotechPvt. Ltd., however, the PAN continued as before without any change and we note it as the same. Thereafter he drew our attention to the following relevant portion of the order of this Tribunal on this issue in assessee’s own case in ITA No.1915/Kol/2017 for A.Y 2011-12, which is as under:
“27. We have considered the rival submissions and also perused the relevant material available on record. As regards the preliminary objection raised on behalf of the Revenue challenging the action of the ld. CIT(Appeals) in entertaining the new claim made by the assessee for treating the subsidy in question received during the year under consideration as capital receipt not chargeable to tax, it is observed that this issue is squarely covered in favour of the assessee, besides the various judicial pronouncements cited on behalf of the assessee and relied upon by the ld. CIT(Appeals) in his impugned order, by the decision of the Coordinate Bench of this Tribunal in the case of DCIT –vs. – Indian Oil Petronas Pvt. Limited rendered vide its order dated 31.05.2018 in ITA No. 157/KOL/2017, wherein it was held by the Tribunal by relying on the decision of the Hon ’ble Supreme Court in the case of National Thermal Power Co. Limited –vs.- CIT (229 ITR 383) as well as the decision of the Hon’ble Calcutta High Court in the case of MaynakPoddar (HUF) –vs.- WTO (262 ITR 633) that his jurisdiction was rightly exercised by the ld. CIT(Appeals) in entertaining the additional ground raised by the assessee claiming exclusion of capital subsidy received by way of sales tax remission under the West Bengal Incentive Scheme. We, therefore, find the objection raised on behalf of the revenue in this regard to be unsustainable and overruling the same, we now proceed to decide the issue on merit.
28. During the year under consideration, the assessee had received incentive of Rs.24,94,66,520/- under the West Bengal Incentive Scheme, 2004 in the form of refund of sales tax paid and the question that has arisen is regarding the taxability of the said amount under the Income Tax Act, 1961, which depends on the determination of the character of the amount, whether it is capital receipt or revenue receipt. There are various judicial pronouncements wherein guidelines or criteria have been laid down to determine the character of such amounts received as incentives/subsidies. As observed by the Hon ’ble Supreme Court in the case of K.C.P. Limited –vs.- CIT [245 ITR 431], it is not the name given by the assesese or even by the revenue or anyone else that matters, but it is true character of the receipt that determines its taxability and being regarded as falling within the capital field or out of it. As held by the Hon ’ble Supreme Court in the case of Ponny Sugar & Chemicals Limited (supra), the nature of the receipt of the incentive has to be examined in the light of the object for which such incentive was paid and if the true character of the incentive is to enable the assessee to meet the capital cost, then that true character must be given full recognition and the fact that the receipt was subsequent to the commencement of production is not to be allowed to stand in the way in its proper treatment as a receipt in the capital field meant to meet a capital cost. Hon ’ble Supreme Court held that it, therefore, cannot be said that the incentive given being post production, though meant exclusively for meeting the capital cost, the amount of incentive would be a trading receipt in the hands of the recipient.
29. In the case of Sahany Steel & Press Works Limited (supra), which has been relied upon by the ld. Representatives of both the sides in support of their respective stand on the issue under consideration, payments had been made post production and since it was in no way linked to the steps that had been taken by the assessee in setting up the industry, Hon ’ble Supreme Court held that the incentive received was revenue in nature chargeable to tax. It was, however, clarified by the Hon ’ble Supreme Court that the subsidy in that case had not been granted for bringing into existence any new asset. It was further clarified by the Hon’ble Supreme Court that the character of the subsidy in the hands of the recipient, whether revenue or capital, will have to be determined by having regard to the purpose for which the subsidy is given. Explaining further with illustration, it was observed by the Hon ’ble Supreme Court that if the Scheme was that the assessee will be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing capacities in backward areas, the entire subsidy must be held to be a capital receipt in the hands of the assessee. After taking note of both these decisions of the Hon ’ble Supreme Court in the case of Sahany Steel & Press Works Limited (supra) and Ponny Sugar & Chemicals Limited (supra), Hon’ble Calcutta High Court has held in the case of Rasoi Limited (supra) that the subsidy received by the assessee from the Government of West Bengal under the Scheme of Industrial Promotion for expansion of capacities, modernisation and improving its marketing capabilities was a capital receipt not chargeable to tax.
30. In the case of K.M. Sugar Mills Limited (supra) cited by the ld. D.R., subsidy was given to the assessee by the Central Government to compensate burden on account of interest, storage and insurance etc. for holding buffer stock of sugar and the object thus being to compensate the assessee in running his business, it was held by the Hon ’ble Allahabad High Court that the subsidy given was clearly revenue in nature. In the case of Keracol Chlorides Limited (supra) cited by the ld. D.R., subsidy was granted for production and not for setting up an industry and the same, therefore, was treated as revenue receipt. In the case of Chhindwara Fuels (supra) cited by the ld. D.R., there was no representation made on behalf of the assessee and in the very brief order passed ex-parte, subsidy received by the assessee from the Government in the form of sales tax refund was held to be a revenue receipt by the Hon ’ble Calcutta High Court mainly on the ground that the same was received by the assessee after production. In support of this conclusion, reliance was placed by the Hon ’ble Calcutta High Court on the decision of the Hon ’ble Supreme Court in the case of Sahany Steel & Press Works Limited (supra). As already noted by us, Hon ’ble Supreme Court in the subsequent decision rendered in the case of Ponny Sugar & Chemicals Limited (supra) has held, after taking note of their earlier decision rendered in the case of Sahany Steel & Press Works Limited (supra), that if the true character of the incentive is to enable the assessee to meet the capital cost, then that true character must be given full recognition and the fact that the receipt was subsequent to the commencement of production is not to be allowed to stand in the way of its proper treatment as a receipt in the capital field meant to meet a capital cost. As regards the decision of the Hon ’ble Delhi High Court in the case of Bhusan Steels & Strips Limited (supra) relied upon by the ld. D.R., it is observed that the operation of the judgment passed by the Hon ’ble Delhi High Court in the said case has been stayed by the Hon ’ble Supreme Court by the interim order passed in SLP No. 30728 to 30732/2017.
31. The position that clearly emerges from the various judicial pronouncements cited by the ld. Representatives of both the sides, as discussed above, is that the character of subsidy in the hands of the recipient, whether capital or revenue, is required to be determined after having regard to the purpose for which the subsidy was given and the mode and source of payment as well as the point of time when the subsidy was paid is not relevant. Keeping this position in mind, let us now see the purpose for which the subsidy in question was given to the assessee in the form of sales tax refund under the West Bengal Incentive Scheme, 2004. As per the West Bengal Incentive Scheme, 2004 notified in the Official Gazette, it was meant to extend incentive for promotion of industries in the State of West Bengal and the same was applicable to all Large/Small Scale Projects and Tourism Units in Large/Small Scale Sector to be set up and also expansion project of existing Units on or after 1s t April, 2004. The object of the said Scheme thus was to promote setting up and expansion of industries and the subsidy was made available to the existing industries for undertaking substantial expansion. Under the said Scheme, “Mega Projects” were not eligible for the interest subsidy and in lieu thereof IPA was made available to them @ 75% of the sales tax, which incentive was not to exceed 100% of the fixed capital investment. The subsidy thus was linked to the fixed capital investment made by the industry and it was in the form of refund of sales tax paid. In line with this Scheme, the assessee-company made expansion of its existing Haldia Manufacturing Unit situated in Midnapore District in the State of West Bengal involving huge capital outlay of Rs. 168 crores and was entitled to IPA of 75% of sales tax paid for a period of 15 years subject to a maximum amount to the extent of 100% of the fixed capital investment i.e. Rs. 168 crores. During the year under consideration, the assessee company was eligible for the said incentive to the extent of Rs.24,94,66,520/- and the benefit to that extent was availed by it.
32. At the time of hearing before us, the ld. D.R. has submitted that the object of the West Bengal Incentive Scheme, 2004 was altogether different from the object of the West Bengal Incentive Scheme of 2000. He has contended that the various decisions rendered by the Tribunal and cited by the ld. Counsel for the assessee treating the subsidy under the 2000 Scheme as capital receipt thus are not applicable. He has also contended that the object of the 2004 Scheme not being very clear, the incentive/subsidy received under the said Scheme should be treated as revenue in nature. We are unable to accept these contentions of the ld. D.R. As already noticed from the relevant Scheme, the object of the Scheme was very clear to promote setting up and expansion of industries and it cannot be said that the said object was not clear as sought to be contended by the ld. D.R. Even the object of the Scheme of 2004 cannot be said to be entirely different from the Scheme of 2000, inasmuch as, the intention of the 2000 Scheme was also to extend incentive for promotion of industries in the State of West Bengal and the subsidy was meant for expansion of the capacities of the eligible industry, their modernisation and improving the marketing capabilities, which cannot be said to be materially different from the Scheme of 2004. On the other hand, there is similarity in the objects of both these Schemes, inasmuch as, it was to provide incentive for the purpose of setting up of new Units as well as for the expansion of the existing Units.
33. It is pertinent to note that the similar issue had come up for consideration before the Delhi Bench of this Tribunal in the case of Pepsico India Holdings Pvt. Limited (supra) cited by the ld. Counsel for the assessee. In the said case, industrial promotional assistance in the form of subsidy by way of refund of sales tax paid was received by the assessee under the same Scheme, i.e. West Bengal Incentive Scheme, 2004 and the issue raised was relating to the taxability of the subsidy received by the assessee. While deciding the said issue, the Tribunal took note of the object of the West Bengal Incentive Scheme, 2004, which was found to be to promote setting up and expansion of projects/industry and keeping in view the said object and the ratio laid down by the Hon’ble Supreme Court in the case of CIT –vs.- Ponny Sugar & Chemicals Limited (supra) as well as in the case of CIT –vs. – Chaphalker Brothers (supra), it was held by the Tribunal that the subsidy received by the assessee under the West Bengal Incentive Scheme of 2004 was capital in nature and the same could not be taxed as revenue receipt.
34. Having regard to all the relevant facts of the case and keeping in view the legal position emanating from the various judicial pronouncements discussed above, we are of the view that the subsidy in question received by the assessee in the form of refund of sales tax under the West Bengal Incentive Scheme, 2004 was capital in nature as the purpose of the same was for the expansion of the existing industry of the assessee. We also hold that merely because the said subsidy was to be received by the assessee only after the commencement of production would not change its character, which otherwise was capital in nature. We accordingly uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue.
35. As regards the issue relating to the treatment to be given to the sales tax subsidy while computing the book profit under section 115JB of the Act, it is observed that this issue is squarely covered in favour of the assessee and against the revenue by the various decisions of the Tribunal. In one of such decisions rendered in the case of Benani Industries Limited (supra), the Coordinate Bench of this Tribunal has held that the capital receipt in the form of sales tax incentive is required to be excluded while computing the book profit under section 115JB of the Act. In another decision rendered in the case of Bricksale India Limited (supra), it was held by the Mumbai Bench of this Tribunal that the amounts which are not taxable in the normal computation cannot be included while computing the book profit because such amounts do not really reflect a receipt in the nature of income and cannot form part of the book profit.
36. At the time of hearing before us, the only contention raised by the ld. D.R. is that it is not very clear as to whether in the cases decided by the Tribunal and relied upon by the ld. Counsel for the assessee, the amount in dispute was credited to the Profit & Loss Account of the assessee as in the present case. However, as pointed out by the ld. Counsel for the assessee from the relevant portion of the orders of the Tribunal, the amounts in dispute were credited by the assessees in the Profit & Loss Account and the factual position in the said cases thus was similar to that of the assessee. As further pointed out by the ld. Counsel for the assessee, a Note No. 20 was given by the assessee-company as Notes to Accounts forming part of its annual accounts pointing out specifically that it was entitled for sales tax incentive of Rs.2494.67 lakhs under the West Bengal Incentive Scheme, 2004. We, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) allowing the claim of the assessee for exclusion of the amount of subsidy in question while computing the book profit under section 1 15JB of the Act. Grounds No. 2 to 5 of the Revenue’s appeal are accordingly dismissed.”
(Emphasis given by us)
8. Since no change of facts or law could be pointed out by the Revenue on this issue which has been decided in assessee’s own case and the case law relied by the A.O in the case of Sahany Steel & Press Works Limited (supra) has also been considered by the Tribunal in the above case of assessee on this issue, we respectfully follow the order of the Tribunal in assessee’s own case for A.Y 2011-12 , we confirm the order of Ld. CIT(A) and dismiss both grounds of appeal.
9. Ground No.3 is against the action of the Ld. CIT(A) in allowing the employee’s contribution to PF/ESI which was not paid before the due date. We note that the Ld. CIT(A) allowed the grounds of appeal of the assessee on this issue by relying on the decision of the Hon’ble Jurisdictional High Court in the case of Vijay Shree Ltd. dated 07.09.2011 in ITAT No.245 of 2011 and the Ld. CIT(A) has held as under:
“Ground No.7 is regarding disallowing of Employee contribution to PF/ESI paid on or before the due date of filing return of Rs.14,32,456/-. It is noted that the same has been paid before the due date of filing of the return. Therefore, following the decision of the Hon ’ble Jurisdictional High Court in the case of Vijay Shree Ltd. dated 07.09.2011 in ITAT No.245 of 2011 and GA No.2607 of 2011. Therefore, this ground is allowed.”
10. Since the decision of the Ld. CIT(A) is by relying on the decision of the Hon’ble Jurisdictional High Court in Vijay Shree Ltd. (supra) and the Revenue could not point out any change of facts or law, we respectfully follow the decision of the Hon’ble Calcutta High Court in Vijayshree Ltd (supra) and confirm the order of the Ld. CIT(A) and dismiss the ground of the Revenue.
11. Ground No.4 is against the action of the Ld. CIT(A) in allowing interest of Rs.18,846/- on delay payment of excise duty. The Ld. CIT(A) has given relief to the assessee by relying on the decision of the Tribunal in the case of Narayani Ispat Pvt. Ltd. (2127/Kol/2014) as under:
“Ground No.8 is regarding disallowing interest of Rs.18,846/- on delay payment of excise duty. This ground is squarely covered in favour of the assessee by the decision of Hon ’ble ITAT in the case of NarayaniIspatPvt. Ltd. (212 7/Kol/2014). Therefore, this ground is allowed.”
12. We note that he Ld. CIT(A) has given relief to the assessee by relying on the decision of the Tribunal in the case of Narayani Ispat Pvt. Ltd., which he did so correctly. And since the relief has been given by relying on the ratio of decision of the Tribunal in the case of Narayani Ispat Pvt. Ltd. (supra), we find no infirmity in the order of the ld. CIT(A), therefore, we confirm the order of the Ld. CIT(A) and dismiss the grounds of Revenue.
13. Ground No.5 is against the action of the Ld. CIT(A) in allowing interest of Rs. 1,76,515/- on delay payment of service tax. We note that Ld. CIT(A) has given relief to the assessee by relying on the decision of the Tribunal in the case of Narayani Ispat Pvt. Ltd. (2127/Kol/2014) as under:
“Ground No.10 is regarding disallowing interest of Rs. 1,76,515/- on delay payment of service tax. This ground is squarely covered in favour of the assessee by the decision of Hon ’ble ITAT in the case of NarayaniIspatPvt. Ltd. (2127/Kol/2014). Therefore, this ground is allowed.”
14. We note that he Ld. CIT(A) has given relief to the assessee by relying on the decision of the Tribunal in the case of Narayani Ispat Pvt. Ltd., which he did so correctly. And since the relief has been given by relying on the ratio of the decision of this Tribunal in the case of Narayani Ispat Pvt. Ltd. (supra), we find no infirmity in the order of the ld. CIT(A), therefore, we confirm the order and dismiss the grounds of Revenue.
15. Ground No.6&7, the Ld. AR relied on the action of the A.O in deleting the action of Ld. CIT(A) of Rs. 10,662/- on account of delay payment of lease rent and in deleting addition of Rs.63,579/- on account of delayed payment of service tax. The Ld. DR fairly submits that he could not trace out any addition made by the A.O or adjudicated by the Ld. CIT(A) on this issue, therefore, these two grounds are dismissed as infructuous.
16. Coming to the next appeal of the Revenue for A.Y 2014-15. Ground Nos.1 & 2 are same that of A.Y 2013-14 and therefore stands dismissed on the same reasoning given for A.Y 2013-14.
17. Ground No.3 is in respect of deletion of addition of Rs. 1,05,344/- on account of interest on delay payment of excise duty which is also covered in favour of assessee by our decision for A.Y 2013- 14 and therefore on the same reasoning this ground of the Revenue is dismissed.
18. Ground No.4 is against the action of the Ld. CIT(A) in deleting an addition of Rs. 10,662/- on account of delay payment of lease rent. The Ld. CIT(A) has given relief to the assessee by holding as under:
“Ground No.5 is regarding disallowing interest of Rs. 10,740/-. The A. O has disallowed penalty of Rs.78/-. The same has already been offered to tax by assessee. The remaining part is interest of Rs.10,662/- on delay payment of lease rent. The company has suomoto disallowed towards penalty payment of Rs. 78/- and the remaining amount is Rs. 10,662/- which is interest towards delayed payment of lease rent of Haldia Plant. The lease rent of Haldia Plant was delayed and hence assessee had to pay interest on the lease rent. It is not in the nature of penalty or any infraction of law and hence allowable.”
19. Since Revenue could not demonstrate that the interest of Rs. 10,662/- on delay payment of lease rent of Haldia plant was in the nature of penalty or an infraction of law, the Ld. CIT(A)’s view was plausible view and we find no infirmity in the order of the Ld. CIT(A) and so we confirm the order of the Ld. CIT(A), therefore, this ground of the Revenue is dismissed.
20. Ground No.5 is against the action of the Ld. CIT(A) in deleting the addition of Rs.63,579/- as interest on delay payment of service tax. This issue has been already decided by us taking note that Ld. CIT(A) has followed the decision of this Tribunal in the case of Narayani Ispat Pvt. Ltd. (supra) and given relief to the assessee. Therefore, we find no infirmity in the order of the Ld. CIT(A) and we confirm the order of the Ld. CIT(A). Therefore, this ground of the Revenue is dismissed.
21. Ground No.6 is against the action of the Ld. CIT(A) in allowing the prior period expenses of Rs.3,92,427/-. The A.O has disallowed Rs.3,92,467/- by observing as under:
“On perusal of the Tax Audit Report [Column 2 7(b) of Form 3CD], it is noticed that the Auditor has pointed out the prior period expenses of 3,92,427/-. However, the assessee has not disallowed the prior period expenses of Rs.3,92,427/- in the computation of total income. On perusal of the details of prior period expenses, it is seen that prior expenses relates to insurance claim, sponsorship, sponsorship fees, computer software and professional fees. During the course of assessment proceedings, the A/R of the assessee could not establish that the corresponding income has been recognized during the year under consideration. Since the prior period expenses are not allowable, the same is disallowed and added to the total income of the assessee company.”
22. The the Ld. CIT(A) has decided the issue as under:
“On this issue the AO has simply stated that the AR of the assessee could not establish that the corresponding income has been recognized during the year under consideration. In Income Tax, the allowance of any expenditure is to be considered whether it has been incurred wholly and solely for the purposes of the business of the assessee or not. The assessee has already explained that the documents were received late. The AO has neither doubted the genuineness of the vouchers nor any doubt has been casted about the non-business purposes of these expenditure vis-à-vis assessee ‘s business. Therefore, they have to be Allowed. Now the question remains will they be allowed in respect of A.Y. 2013-14 or A.Y. 2014-15? The AO is directed to allow them in the year they have been claimed.”
23. Having heard both sides, we note that although the expenditure pertains to earlier years but the same has been crystallized during the previous year relevant to A.Y 2014-15 only and hence according to assessee the same has been claimed as deductible expenditure. The assessee also explained that late submission of bills by the parties, disputes over the bills settled in the current year, short provisioning of expenses was, among others, the reasons for which expenses related to earlier years were accounted for by the assessee during the current financial year. It has been taken note by the Ld. CIT(A) that none of the expenditure has been found bogus or nondeductible under any provision of the Act. According to the assessee, all these expenses are genuine expenditure otherwise deductible from the income of the assessee. It is also noted that for the AY 2013-14 & AY 2014-15 the assessee has paid tax under MAT and the tax rate under MAT is same for both the year, hence it is noted that the assessee will not gain any benefit by deferring the tax liability. The assessee had relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. Vishnu Industrial Gases (P) Ltd. (IT Ref. No.229 of 1998 and CIT vs. Shri Ram Pistons & Rings Ltd. (2008) 220 CTR (Del) 404. It was held by the Hon’ble Delhi High Court that unless it is noticed that the assessee has deliberately claimed prior period expenses by deliberate deferment to reduce tax liability in the subsequent years, there is no reason to disallow the prior period expenses in a summary manner. In the light of the aforesaid discussion, we find no infirmity in the order of the Ld. CIT(A) and we confirm the order of the Ld. CIT(A), therefore, this ground of the Revenue is dismissed.
24. Thus, the appeal of revenue are dismissed.
25. The Ld. AR has brought to our notice that the assessee has preferred a petition under Rule 27 of Income Tax Appellate Tribunal Rules 1963 for A.Ys 2013-14 and 20 14-15. Since the averments in both the years are the same, we reproduce the submission of the assessee for A.Y 20 13-14 which is as under:
This humble Petition under Rule 27 of the Income Tax Appellant Tribunal Rules, 1963of the Petitioner most humbly and respectfully SHEWETHS
1. The Income Tax Appeal bearing ITA No. 2563/Kol/2019 has been filed by the Revenue against the order passed by Ld. CIT(A)-4, Kolkata on 19th September 2019. The said Appeal is fixed for hearing before Hon’ble “B” Bench on 7th December 2020.
2. The facts of the case are that the Respondent Assessee had received various incentives/Subsidies, as detailed herein below, from West Bengal Government and Andhra Pradesh Government.
Electricity Duty Rs. 2,07,09,740
Sales Tax Incentive Rs.43,08, 97,000
3. The Respondent Assessee Company claimed before the Assessing Officer that these Incentives/subsidies were received by it under Schemes formulated by Government of West Bengal and Government of Andhra Pradesh for industrial development in the respective states. It was claimed that the said Incentives/Subsidies were Capital receipt in nature and were not liable to be taxed under Income Tax Act, 1961.
4. The Ld. Assessing Officer disagreed with the Respondent Assessee and held that the aforesaid Incentives/Subsidies were Revenue receipts chargeable to tax and completed the Assessment vide Assessment Order dated 21st December, 2016 passed u/s 143(3) r.w.s 144C(3) of the Income Tax Act, 1961.
5. The Assessee Company filed an appeal against the said Assessment Order before Ld. Commissioner of Income Tax (Appeals) – 4, Kolkata against the disallowance of the claim of Rs.43,08,9 7,000 who allowed the said claim of the Assessee Company vide his order dated 19th September, 2019 in Appeal No. 812/CIT(A)-4/2 016-1 7.
6. The Revenue has filed the appeal against the aforesaid relief allowed by Ld. CIT(A)-4, Kolkata. The Respondent Assessee did not file any appeal against the order passed by Ld. CIT(A) and/or Cross Objection against the appeal filed by Revenue.
7. The Respondent Assessee submits that the Incentive of Rs.2, 07,09,740 in respect of waiver of Electricity Duty allowed to the Respondent Assessee Company in pursuance to the West Bengal Incentive Scheme 2004 is also a Capital receipt not chargeable to tax. However, this claim of the Assessee Company remained disallowed by the Ld. Assessing Officer and uncontested before Ld. CIT(A).
8. The Respondent Assessee Company most humbly and respectfully submits that the issue is covered in favour of the Assessee Company by the following two judgements of Hon’ble Calcutta High Court.
(i) PCIT, Kolkata vs. Ankit Metal & Power Ltd. [2019] 109 taxmann.com 93 Dt. of Judgment . 09.0 7.2019
(ii) PCIT, Kolkata vs. Shyam Steel Industries Ltd. [2018] 93 taxmann.com 495 Dt. of Judgment 07.05.2018
9. The Assessee Company had received exempt income of Rs.5,83,965 by way of dividend. The Assessee Company inadvertently offered suomotu disallowance of Rs.7,56,363 u/s 14A of the Income Tax Act, 1961. The Ld. Assessing Officer made further disallowance of Rs.33,54,567. The Ld. CIT(A), on appeal before him allowed relief of Rs.33,54,567.
10. The Assessee Company submits that the disallowance u/s 14A cannot be more than the amount of the exempt income. This law is well settled by the judgement of Hon ’ble Delhi High Court in the case of Pr. CIT v. Caraf Builders & Constructions (P.) Ltd. [2019] 101 taxmann.com 167 (Delhi). SLP filed by Revenue against this judgement was dismissed by Hon ’ble Supreme Court in [2019] 112 taxmann.com 322 (SC)
11. The Assessee Company submits that the mistake or inadvertence on the part of the assessee whereby an income not taxable is wrongly offered for tax, will not operate as any kind of estoppel against the assessee regardless whether the revised return was filed or not. In such a case the Revenue is obliged to assess the correct income. In support of the aforesaid claim the Assessee Company refers to and relies on the judgement of Hon ’ble Gujarat High Court in the case of Pr. CIT vs. Greenland Infracon P. Ltd. in R/Tax Appeal No. 239 of 2019 (Judgement dated 09.0 7.2019). The relevant portion of the judgement is quoted hereunder.
“6. The Tribunal also concurred with the findings recorded by the CIT(A) that the mistake or inadvertence on the part of the assessee whereby an income not taxable is wrongly offered for tax, will not operate as any kind of estoppel against the assessee regardless whether the revised return was filed or not. If the assessee is in a position to show that it has been over assessed on account of his own mistake, the Revenue is obliged to assess the correct income.
7. Having regard to the concurrent findings recorded by the two Revenue authorities, we are not inclined to disturb such findings.” ,
12. The Respondent Assessee Company prays that it may kindly be permitted to raise the following grounds in accordance with Rule 27 of the Income Tax Appellate Tribunal Rules, 1963.
1. That the sum of Rs.2,52, 17,603/- received by the Assessee Company towards waiver of Electricity Duty be held to be Capital Receipt not chargeable to tax.”
2. That the disallowance u/s 14A of the Act be limited to the amount of dividend income claimed to be exempt.”
26. For A.Y 2014-15, averments were the same except figures in the prayer which is as under:
“1.That the sum of Rs.2,52,17,603/- received by the Assessee Company towards waiver of Electricity Duty be held to be Capital Receipt not chargeable to tax.”
2.That the disallowance u/s 14A of the Act be limited to the amount of dividend income claimed to be exempt.”
27. For adjudicating these two issues under Rule 27 of the Income Tax Appellate Rules 1963, it will be useful for us to refer to the Rule 27 which reads as under:-
Rule 27. Respondent may support order on grounds decided against him.
“The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.”
28. The Ld. D.R opposing the Rule 27 of the Income Tax Appellate Tribunal Rules (hereinafter referred to the Rules) pointed out that as per this rule, the respondent in this case, the assessee even though had not filed any appeal or cross-objection, it (assessee) may support the order of Ld. CIT(A) on a ground decided against it by the Ld. CIT(A). Therefore, according to Ld. D.R, the assessee could have supported the order of Ld. CIT(A) on any of the grounds decided against it by the Ld. CIT(A) and in this case it is very clear that the assessee has not contested before the Ld. CIT(A) the claim of disallowance of incentive of Rs. 2,07,09,740/- in respect of waiver of Electricity duty by the State of West Bengal as per West Bengal Incentive Schemes, 2004. So, according to Ld. D.R since the issues/new grounds raised in this Rule 27 application has not at the first instance been agitated before the Ld. CIT(A), he wondered as to how Rule 27 can be pressed into for admission of two new grounds and how it can be said to support the decision of Ld. CIT(A). According to Ld. D.R, if the assessee had any grievance in respect of two grounds (new), then the assessee ought to have filed an appeal or cross-objection rather than filing Rule 27 application which in not correct at all. So he objects to the admission of two new grounds under Rule 27 of the Rules. On the other hand, the Ld. A.R submitted that the issues raised are no longer res-integra and therefore these are legal issues which should be admitted for interest of justice and technicalities should not come in the way of substantial justice and the counsel’s omission not to file appeal/C.O should not deprive the assessee of the substantial justice.
29. We have heard both the parties and perused the records. We note that the revenue has preferred an appeal against the order of Ld. CIT(A) dated 19.09.20 19 and 20.09.2019 for AY 2013-14 and AY 2014-15 respectively. However, the assessee did not prefer any cross appeal or cross objection against the impugned order of Ld. CIT(A). However, the assessee has preferred an application under Rule 27 of the Rules praying for permitting it to raise two grounds in accordance with Rule 27 of the Rules.
1. That the sum of Rs.2,52, 17,603/- received by the Assessee Company towards waiver of Electricity Duty be held to be Capital Receipt not chargeable to tax.”
2. That the disallowance u/s 14A of the Act be limited to the amount of dividend income claimed to be exempt.”
In para 7 of its petition preferred under Rule 27 which is reproduced at page 10 and 11 of this order it can be noted that the assessee had received incentive of Rs. 2,07,09,740/- in respect of waiver of electricity duty from the Govt. of West Bengal under West Bengal Incentive Scheme, 2004 which according to assessee it had claimed as a capital receipt which is not chargeable to tax. However, according to the assessee, this claim was disallowed by AO and the assessee did not contest the action of AO before the Ld. CIT(A). According the assessee the question whether the incentive received by the assessee company towards waiver of electricity duty is a capital receipt or not, is no longer res-integra after the decision of Hon’ble Calcutta High Court in Ankit Metal & Power Ltd. and Shyam Steel Industries Ltd. (supra) and since the issue has been settled by the Hon’ble jurisdictional High Court that this receipt is a capital receipt and is not chargeable to tax, this ground of appeal raised through Rule 27 is purely a legal issue and it should be admitted by this Tribunal even though it has not been raised before the Ld. CIT(A). We don’t completely agree with the said contention of the assessee; though we agree that a legal issue can be raised before this Tribunal even if it has not been raised before the lower authorities i.e. a legal issue can be raised for the first time before this Tribunal. However, we are aware of our limitation too. We are very much aware that we are a creature of the Statute and derive our power from the Act [chapter (XX) to Section 252 to 255 of the Act]. As per section 252 of the Act, the Central Government has been empowered to constitute this Tribunal consisting of as many judicial and accountant member; and the Tribunal to exercise the powers and discharge the function conferred on it by this Act. So we derive the power from the Act and obliged to discharge the function which is specifically conferred on us by this Act and Rules framed by there under. And in exercise of the powers conferred by sub-section (5) of section 255 of the Act, the Tribunal has framed the Income Tax Appellate Tribunal Rules, 1963, the Rules to regulate the procedure of the Tribunal. By virtue of the provisions of the Act and Rules, if the assessee /revenue is aggrieved by the order of Ld. CIT(A), then either parties can prefer an appeal or cross objection before this Tribunal and Rule 27 can be used by the respondent (in this case, the assessee), though it (assessee) has not filed an appeal or cross objection, still can support the action order of Ld. CIT(A) on any grounds decided against it by the Ld. CIT(A). We find that the issue regarding incentive which the assessee received towards waiver of electricity duty or disallowance u/s 14A of the Act was not raised as a ground by the assessee before the Ld. CIT(A) and therefore it is difficult to comprehend as to how the provision of Rule 27 can come to the aid of the assessee for admission as new grounds of appeal which are not even pure legal issue but it is issues which are mixed question of facts and law. And it has to appreciated that since we are a creature of the Act, we do not enjoy the inherent power of Court or Constitutional Courts. And even though the issues raised may be no longer res-integra, however since our powers are limited and without the assessee preferring any appeal or cross objection we are unable to admit these two grounds for adjudication under Rule 27. And moreover we note that the decision relied upon by the assessee of the Hon’ble Calcutta High Court in the case of M/s Shyam Steel Industries Ltd. was dated 07.05.2018 and in the case of M/s Ankit Metal & Power Ltd. was dated 09.07.20 19 and the impugned order of Ld. CIT(A) before us are dated 19.09.2019 and 20.09.2019 for AY 2013-14 & 2014-15 respectively. So even the assessee could have raised it before the Ld. CIT(A) as an additional ground or preferred an appeal/ CO before this Tribunal. However, the assessee has not bothered to file an appeal or cross objection through which it could have raised these grounds. So, therefore the application of assessee under Rule 27 for admission of new grounds cannot be admitted. So the Rule 27 applications are dismissed for both years.
30. In the result, both the appeals of the Revenue are dismissed.
Order is pronounced in the open court on 26.03.202 1.
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