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आदेश/Order
PER N.K. SAINI, VICE PRESIDENT These cross appeals by the Department and the Assessee are directed against the order dt. 06/07/2018 of Ld. CIT(A)-3, Gurgaon.
2. At the first instance we will deal with the appeal of the Department in wherein following grounds have been raised: i) Whether on the facts and in the circumstances of the case, the CIT(A) was correct in taking expenses made on account of technical know-how as revenue expenditure and not capital expenditure, as the know-how obtained by the assessee is linked to substantial modernization and expansion of the existing unit / existing technique and procedure of production and it is related to enhancement of manufacturing facility / capacity. ii) Whether on the facts and in the circumstances of the case the CIT(A) was right in deleting the addition made on account of technical know-how fees amounting to Rs.40,72,070/- on the basis the decision of the Hon'ble ITAT dated 26.09.2013 for AY 2009-10. iii) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in following the decision of the Hon'ble ITAT dated 21.10.2015 for A Y 2008-09 in the case of the assessee itself and deleting the addition of Rs.5,60,12,370/- holding the sales tax subsidy as capital receipts in nature. iv) Whether on the facts and circumstances of the case, the Ld.CIT(A) has erred in treating the sales tax subsidy as capital receipts in nature despite the decision of Hon'ble Delhi High Court in the case of CIT vs. Vardhman Industries Ltd. vide consolidated order dated 13.07.2017 in ITA No.681/2004, 708/2004. 755/2004 & 725/2004, 398 ITR 216 wherein sales tax subsidy has been held to be a revenue receipt. v) Whether on the facts and in the circumstances of the case the decision of the Hon'ble Supreme Court in the case Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (SC) and treating the sales tax subsidy as capital receipts in nature was wrongly followed despite the observation of the AO in the assessment order that the facts of the present case are distinguishable from that of Ponni Sugar and Chemicals Ltd. vi) Whether on the facts and in the circumstances of the case the fact that sale tax subsidy which is a post production subsidy, is held to be a revenue receipt as it is an incentive given to the assessee when its business is running. vii) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing.
3. Ground No. (i) and (ii) of this appeal relate to the deletion of addition of Rs. 40,72,070/- made by the A.O. on account of expenses relating to technical know-how.
4. As regards to this issue Ld. Counsel for the assessee at the very outset stated that this issue is covered in favour of the assessee and that the Ld. CIT(A) deleted the addition by following the earlier order dt. 27/05/2019 of the ITAT in assessee’s own case in for the A.Y. 2011-12, copy of the said order was furnished which is placed on record.
5. In his rival submissions the Ld. CIT DR although supported the order of the A.O. but could not controvert the aforesaid contention of the Ld. Counsel for the Assessee.
We have considered the submissions of both the parties and perused the material available on the record. It is noticed that an identical issue having similar facts has already been adjudicated by this Bench of ITAT in assessee’s own case in for the A.Y. 2011-12 vide order dt. 27/05/2019 wherein the relevant findings has been given in para 7 to 11 which read as under:
Ground of appeal No.v) raised by the Revenue reads as under:
v) Whether on the facts and in the circumstances of the case the CIT(A) was right in deleting the addition made on account of technical knowhow fees amounting to Rs.39,35,029/- on the basis the decision of the Hon'ble ITAT dated 26.09.2013 for AY 2009-10.
Brief facts relating to the issue are that the assessee had claimed expenses on technical know-how, of Rs.39,35,029/- as revenue expenditure in its Profit & Loss Account . The same had been paid to M/s Ring Tech. Co.,Japan under a technical collaboration agreement entered into in 1997 and extended from time to time. The A.O. asked the assessee to justify as to how the expenditure was revenue expenditure and why i t should not be treated as capital expenditure. In response to the same, the assessee submit ted that the main objective of the agreement was to increase the productivity and to reduce the reject ions from the current levels. Thus i t was pointed out that the objective was to effect the economy and efficiency in manufacturing and, therefore, had been rightly claimed as revenue expenditure. I t was contended that the company had not acquired any capital asset in the nature of exclusive user of technology information. The assessee further submitted that identical issue had been decided in favour of the assessee by the I .T.A.T. in earlier years. The A.O. did not accept the content ion of the assessee. Referring to the collaboration agreement , the A.O. held that the assessee had purchased/acquired technical know-how to completely overhaul its design, plant and manufacturing systems thus getting enduring benefit of permanence and durability. The A.O. held that technical know-how obtained by the assessee was l inked to substantial modernization and expansion of existing unit/technique and procedure of product ion and, therefore, was in the nature of intangible asset and of enduring nature. He further stated that the Department had challenged the order of the I .T.A.T. before the Hon'ble High Court in earlier years. Accordingly, the A.O. treated the technical know-how expenses incurred and claimed by the assessee as capital in nature and disallowed the same.
9. The Ld.CIT(A) allowed the assessee’s appeal on finding that identical issue had been adjudicated by the CIT(A) in earlier years in favour of the assessee and appeal of the Revenue against the order of the CIT(A) had been dismissed by the I .T.A.T. vide its order dated 26.9.2013 for assessment year 2009-10.
10. Before us, the Ld. DR heavily relied upon the order of the A.O. though fairly conceded that identical issue had been decided in favour of the assessee in assessment year 2009-10 by the CIT(A) , whose order had been upheld by the I .T.A.T. also.
11. In view of the findings of the CIT(A) that identical issue stands decided in favour of the assessee in assessment year 2009-10 by the I .T.A.T. , which has been admitted to by the Revenue also and no distinguishing facts having been brought to our notice by the Ld. DR, the Ld.CIT(A) , we hold, has rightly allowed the assessee’s appeal following the order of the I .T.A.T. in assessee’s own case for assessment year 2009-10. We therefore find no reason to interfere in the order of the Ld.CIT(A) holding the technical knowhow expenses of Rs.39,35,029/- as revenue in nature.
The ground of appeal No.v) raised by the Revenue is therefore, dismissed.”
7. Since the facts for the year under consideration are similar to the facts involved in the A.Y. 2011-12 in so respectfully following the aforesaid referred to order dt. 27/05/2019, we do not see any merit in these grounds of the Departmental appeal.
8. Vide Ground No. (iii) to (vi) the grievance of the Department relates to the deletion of addition of Rs. 5,60,12,370/- made by the A.O. by treating the sales tax subsidy a revenue in nature.
As regards to this issue the Ld. Counsel for the Assessee submitted that it is also covered in assessee’s favour vide order dt. 27/05/2019 in copy of the said order was furnished which is placed on record.
In his rival submissions the Ld. CIT DR strongly supported the order of the A.O.
After considering the submissions of both the parties and the material available on the record, it is noticed that an identical issue having similar facts has been decided in assessee’s favour and against the Department vide aforesaid referred to order dt. 27/05/2019 in wherein the relevant findings have been given in para 2 to 6 which read as under:
Ground Nos. i ) to iv) , i t was contended, related to the same issue of treatment of sales tax subsidy received by the assessee, whether capital or revenue in nature and the same read as under:
i) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in following the decision of the Hon'ble ITAT dated 21.10.2015 for AYs 2003- 04, 2004-05 & 2008-09 in the case of the assessee itself and deleting the addition of Rs. 1,84,45,151/- holding the sales tax subsidy as capital receipt in nature. ii) Whether on the facts and in the circumstances of the case the decision of the Hon'ble Supreme Court in the case Ponni Sugar and Chemicals Ltd. and treating the sales tax subsidy as capital receipts in nature was wrongly followed despite the observation of the AO in the assessment order that the facts of the present case are distinguishable from that of Ponni Sugar and Chemicals Ltd. iii) Whether on the facts and in the circumstances of the case the fact that sale tax subsidy was given to existing unit and not for setting up new unit or expansion of the same was not considered. iv) Whether on the facts and in the circumstances of the case, the fact that the subsidy receipt after the commencement of production by the unit was not required to be treated as capital in nature was not considered.
The facts relating to the case are that from the Notes on Accounts of the assessee company, the A.O. noted that it had been granted exempt ion on sales tax under the Punjab Industrial Policies, 1989 & 1996. Under this the assessee company was given sales tax exemption on account of enhancing modernization of units and furthering industrial growth in the State and as per the scheme the sales tax was deemed to have been paid. The A.O. , however, noted that in the computation of taxable income of the assessee, the assessee had reduced its taxable profits by claiming a deduct ion of Rs.1,84,45,151/- on account of notional sales tax liability arising out of such subsidy, by treating the same as capital receipt instead of revenue receipt . The assessee was asked to justify the same. In response to which, the assessee f i led a detailed reply elaborating the scheme of the Punjab Government as per which the subsidy was received and stating that since i t was granted the exempt ion under the Industrial Policy & Incentive Scheme, 1996 of the Government of Punjab, with a view to promote growth of industry in the State and to push and support for consolidation and expansion of existing industries, the nature of subsidy was capital and thus not taxable in the hands of the assessee. The A.O. rejected the content ion of the assessee and noted that identical issue had been decided by the Hon'ble Jurisdictional High Court in the case of CIT Vs. Abhishek Industries Ltd., 286 ITR 1, holding the subsidy to be revenue in nature. Following the said decision and noting the fact that i t was a post product ion subsidy, the A.O. treated the subsidy as revenue in nature and added the same in the income of the assessee.
Before the Ld.CIT(A) , the assessee contended that identical issue had arisen in the case of the assessee in the preceding year also, wherein the matter had travel led up to the Hon'ble High Court who had remanded the issue back to the I .T.A.T. and who in turn had decided the issue in favour of the assessee in remand. The Ld.CIT(A) after going through the order of the I.T.A.T. in the case of the assessee in ITA No.341/Chd/2007 and ITA No 756/Chd/2011 for assessment years 2003-04, 2004-05 and 2008-09, found that the issue of sales tax subsidy had been decided by the I .T.A.T. in favour of the assessee holding the same to be capital in nature. Accordingly, the addition made by the A.O. was deleted by the Ld.CIT(A) . Relevant findings of the CIT(A) at page 12 of the order are as under:
“I have gone through the Hon'ble ITAT's order in the case of the appellant in ITA No. 341/Chd/2007 & ITA No. 756/Chd/2011 for A.Y 2003-04, A.Y 2004-05 and 2008-09 wherein the matter has been adjudicated as under:
In these cases, the assessee have received Sales Tax Subsidy from Punjab Govt. under the scheme named 'Industrial Policy & Investment Code, 1996'. We have gone through the said policy and found that the scheme though not verbatim as that of West Bengal or Gujarat Scheme, but the sum and substance of all these schemes are the same, therefore, relying on our finding gives in we hold that the Sales Tax Subsidy received by the assessee is Capital in nature.
As the addition made by the AO is covered by the order of the Hon'ble ITAT in favour of the appellant, the addition made on this account is deleted.”
Before us, the Ld. DR vehemently supported the order of the A.O. though he fairly conceded that this issue had been decided in favour of the assessee by the I .T.A.T. in the case of the assessee itself in earlier years.
6. In view of the same, since the issue of sales tax subsidy received by the assessee by virtue of scheme of Punjab Government has already been decided by the I .T.A.T. in the case of the assessee itself in the preceding years, holding the same to be capital in nature and with no distinguishing facts having been brought to our notice by the Ld. DR, we see no reason to interfere in the order of the Ld.CIT(A) al lowing the assessee’s appeal following with order of the I .T.A.T.
In view of the above, ground of appeal Nos. i ) to iv) raised by the Revenue are dismissed.”
12. Since the facts for the year under consideration are similar to the facts involved in the A.Y. 2011-12 in so respectfully following the aforesaid referred to order dt. 27/05/2019, we do not see any merit in these grounds of the Departmental appeal.
13. Ground No. (vii) is general in nature so do not require any comment on our part.
14. Now we will deal with the appeal of the Assessee in wherein following grounds have been raised:
1. That the Ld. CIT (Appeals) has grossly erred in law as well as on facts in confirming the disallowance of Rs.225 Lacs on account of Electricity Duty Exemption entitlement treating the same as revenue receipt, whereas, the same is in the nature of capital receipt. Therefore, the addition of Rs.225 Lacs may kindly be deleted and claim of the assessee please be allowed.
2. That the Ld. CIT (Appeals) has grossly erred in law as well as on facts in confirming the disallowance of claim of the assessee for Rs.560.12Lacs on account of sales tax subsidy and Rs.225 Lacs on account of entitlement to Electricity Duty Exemption as deduction from the Book Profits u/s 115JB being in the nature of capital receipts. The deduction of Rs.560.12 Lacs and Rs.225 Lacs may kindly be allowed from the Book Profits u/s 115JB.
The assessee craves leave to add, alter and amend the above grounds of appeal before the same are heard or disposed of. It is respectfully prayed that the relief may kindly be allowed to the assessee keeping in view of the aforesaid grounds of appeal.
15. Vide Ground No. 1 the grievance of the assessee relates to the confirmation of disallowance of Rs. 225 Lacs made by the A.O. on account of Electricity Duty Exemption claimed by the assessee as capital in nature.
The facts related to this issue in brief are that the assessee is in the business of manufacturing of Automotive Wheel Rims and filed the return of income on 28/09/2013 declaring an income of Rs. 36,36,217/- which was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’). Subsequently, a search and seizure operation under section 132 of the Act was carried out on 04/10/2012 on the business and residential premises of the M/s Steel Strips Group of cases to which the assessee belong. Thereafter the statutory notice dt. 25/07/2013 under section 142(1) of the Act was issued and served upon the assessee. In response the assessee furnished the return of income on 14/08/2013 declaring an income of Rs. 36,36,218/-. The A.O. issued statutory notice dt. 07/04/2014 under section 143(2) of the Act alongwith notice under section 142(1) and questionnaire dt. 07/04/2014 to the assessee.
During the course of assessment proceedings the A.O. noticed that the assessee had claimed the entitlement to Electricity Duty Exemption of Rs. 2,25,00,000/-as it is capital receipt. The A.O. asked the assessee to show cause as to why the said amount be not treated as the revenue receipt and taxed accordingly. In response the assessee submitted as under:
"Regarding the deduction of entitlement to Electricity Duty Exemption of Rs.2,25,00,000/- claimed by the assessee during the year. It is submitted as under: The Government of Punjab has announced a number of incentive packages under its Industrial Policy 2003, one of which is the grant of upto 50% Electricity Duty Exemption to Industries for the development of Mega Projects who makes fixed capital Investment of Rs.100 crores and above. The main objectives of the subsidy scheme are: • Industrial Infrastructure Development. • Measures for attracting new investments. • To create a conductive investment climate through infrastructure creation, reduced regulations and general facilitation. • To rejuvenate and make competitive existing Industry, particularly in the small scale sector through improved technology, product quality and marketing • To create a special thrust in the areas where Punjab has an edge in terms of cost and competitiveness.
From the above it is clear that the incentives have been granted with a view to build a conducive industrial climate to attract fresh investment and also facilitate the growth and expansion of industry in the state. Copy of the Industrial policy is enclosed.
The assessee has made an application to the state authorities for grant of 50% electricity duty exemption to company under the Punjab Industrial Policy 2003 which has been approved vide letter no.CC/JDP/Steel Strips/871 dt. 19.03.2012 (copy of letter is enclosed).
The company is following mercantile system of accounting; therefore it has booked its entitlement to electricity duty exemption in its books of account for the year under consideration whereas the same has not been received by the assessee. Therefore electricity duty exemption entitlement has been reduced from taxable income while filing the tax return. It is a well settled principal that the entries in the books of accounts are not decisive or conclusive for claiming any deduction or expenditure under the Income Tax Act. The entries in the books of accounts are made as per the accounting methods regularly adopted by the assessee. However such entries in the books of accounts are not decisive or conclusive for determining the real income for tax purposes. Further submitted that although assessee has claimed the electricity duty exemption under the aforesaid policy of the state govt, which was approved by the authorities vide letter dated 19.03.2012 and on the basis of which assessee has included the entitlement in its income, however as per the procedure, the eligibility of the assessee for Electricity Duty exemption is to be judged by a separate empowered committee. The department is in the process to send the case to empowered committee for approval for issuance of eligibility certificate. Copies of some correspondence between department and assessee in this regard is enclosed. The department has also designated various agencies like Earnst & Young, NITCON, Grant Thornton, Walker Chandiok & Co. LLP to verify the eligibility of the assessee for the entitlement of electricity duty exemption. Grant Thornton has submitted their report to the department. Copy of the report is enclosed. Until and unless department is not satisfied with the compliance of eligibility conditions by assessee, the assessee is not entitled for the benefit of exemption from electricity duty. Therefore, since the eligibility and entitlement of the assessee to exemption from electricity duty is still under consideration of the department, the income has not accrued to the assessee in real sense. Due to pendency of verification of compliance of eligibility conditions, the assessee has not even filed its claim before the department for benefit of exemption. The assessee has included the income of Rs.2,25,00,000/- in its P & L A/c on an estimated basis which may or may not be received by the assessee. The assessee has calculated the amount of exemption on estimation basis as under: Average of one year before expansion undertaken Rs. 9.00 Lacs p.a Expansion completed on 12.09.2007 Therefore Incentive Eligibility for 5 years from September 2007 Period Total Electricity Duty - Average of one year (Rs. In Lacs) (Rs. In Lacs) Sept. ‘07 to March ’08 36.74 5.24 April’08 to March’09 59.92 9.00 April’09 to March’10 76.96 9.00 April’10 to March’11 143.74 9.00 April’11 to March’ 12 150.81 9.00 April’12 to August’12 60.00 3.75 ---------- -------- 528.17 - 45.00 = 483.17 ----------- --------- 50% of consumption of last five years =483.17/2 = 241.58 Accounted in books of accounts on estimated basis = 225.00 Further in case assessee gets clearance form empowered committee for being eligible to claim the benefit, it shall be received by the assessee by way of adjustment in electricity bills of future consumption. The assessee has not received any benefit way of adjustment or reimbursement so far from the department. It is hypothetical income which may or may not materialize and its money value is not the income of the assessee at this stage. Therefore the deduction on account of Electricity Duty Exemption may please be allowed to the assessee since it is still merely at the consideration stage which has not been granted to or received by the assessee. It is well settled law that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount. Therefore, income certainly accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee.
Without prejudice to our stand as aforesaid it is further submitted that the Company is entitled for electricity duty exemption on account of expansion at the existing unit in the state of Punjab. The said electricity duty exemption is available under the Industrial Incentive Scheme of Govt, of Punjab with a view to promote growth of Industry in the state and to push and support for consolidation and expansion of existing industries. This electricity duty exemption is based upon the fixed capital investment. The electricity duty exemption of Rs.2,25,00,000/- in respect of increase in average consumption of electricity due to expansion of production being in the nature of subsidy is a capital receipt and thus not taxable in the hands of the assessee.
The reliance has been placed on the judgment of the jurisdictional P & H High Court in the case of the CIT vs Siya Ram Garg HUF in decided on 14.12.2010 , wherein the Hon'ble P & H High Court while placing reliance on the Judgment of the Apex Court in the case of Ponni Sugars 219 CTR 105 (2008) and distinguishing the judgment in the case of M/s Abhishek Industries Ltd. 286 ITR 1 has held that the test to determine as to whether incentive subsidy received by the sugar mills was a capital receipt or a revenue receipt, is that the character of the receipt in the hands of the assessee is to be determined with respect to the purpose for which the subsidy is given; that the point of time at which the subsidy is paid, the source of the subsidy and even the form thereof are immaterial.
Therefore it is respectfully submitted that the deduction on account of electricity duty exemption of Rs.2,25,00,000/- accounted for on estimated basis may please be allowed to the assessee."
17.1 The A.O. however did not find merit in the submissions of the assessee and treated the amount of Rs. 2,25,00,000/- on account of entitlement of Electricity Duty Exemption as revenue receipt by observing in para 5.3.2 to 5.3.4 as under:
5.3.2 I have considered the submissions of the assessee. The assessee is following mercantile system of accounting and therefore has booked the entitlement as income on accrual basis in its books of accounts. The books of accounts are maintained on regularly employed methods and are being audited regularly. The assessee cannot escape liability to tax by changing its stand. The income becomes taxable on the date when the same is recorded in books of accounts in accordance with applicable accounting practices. Therefore, the Electricity Duty Exemption is being treated as revenue receipt and taxed during the year under consideration in view of the mercantile system of accounting regularly being followed by the assessee.
The alternate stand of the assessee of treating the entitlement of Electricity Duty Exemption as capital receipt is also not acceptable. It is seen that in the case of CIT vs Siya Ram Garg (HUF), the Hon'ble Punjab & Haryana High Court has adjudicated the issue of an agro based subsidy which is not in the case of the assessee, therefore not applicable to the case of the assessee. 5.3.4 Therefore, an amount of Rs.2,25,00,000/- on account of entitlement to Electricity Duty Exemption is treated as its revenue receipt/business income and added to the net taxable income of the assessee.
Being aggrieved the assessee carried the matter to the Ld. CIT(A) who confirmed the addition by observing as under:
Hon'bIe Calcutta High Court in a recent judgment in the case of PCIT-I Kolkata v/s Shyam Steel Industries Ltd. dt. 07.05.2018 in ITA 37 of 2018 has discussed the "purpose test" expanded in a recent judgment of Hon'ble Supreme Court reported at 400 ITR 279 (CIT v/s Chaplakha Brothers). In the referred case, the terms of the scheme under which the subsidy was made available to the appellant were found relevant and discussed by the Hon'ble Court as follows:- "Clause B.6.1 of the scheme made it applicable to all large scale new units and for expansion of expansion of existing units on or after July 16, 2004". In addition, clauses B.8.4 and B.8.5 clearly indicated that certain subsidies on account of capital expenditure could not be availed of by entities opting for the incentive under the subject scheme. It was submitted on behalf of appellant that since the incentive under the present scheme, as would be evident from the terms thereof, was in lieu of certain other schemes on account of capital expenditure which may have been obtained by an assessee, the real purpose of the scheme has to be seen as augmenting the capital resources by a new or expanded unit and not to allow a lower cost of the daily functioning of an existing unit. The difference may be in degrees but the words of a scheme and the real purpose thereof have to be discerned in assessing whether the incentive or the subsidy thereunder has to be regarded as a capital receipt or a revenue receipt. There may be a scheme for instance that permits every entity of a certain class or lower charges for consumption of power irrespective of the unit being a new unit or it having expanded itself. In such a scenario, the incentive would have to be invariably regarded as a revenue receipt. However, when the scheme itself makes the incentive applicable only to new and expanding units, the fact that the incentive is in the form of a rebate by way of sales tax or concessional charge on account of use of power or a lower rate of duty being made applicable would be of little or no relevance." The case of the appellant differs on facts from the above referred judgment because Industrial Policy 2003 of Punjab Govt, though applicable "to all large scale new units and for expansion of existing units" does not indicate that certain subsidies on account of capital expenditure could not be availed of by entities opting for the incentive under the subject scheme. Thus, the real purpose of the scheme was not to augment the capital resources by a new or expanded unit but to allow a lower cost of the daily functioning of an existing unit. As the scheme in the case of the appellant permits every entity of a certain class to lower charge for consumption of power irrespective of the unit being a new unit or it having expanded itself, it held by the Hon'ble High Court that the incentive would have to be invariably regarded as a revenue receipt. Hence, the addition made by the A.O. in this regard is confirmed.
Now the assessee is in appeal.
Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the incentive in the form of electricity duty exemption had been granted to the assessee with a view to build a conducive industrial climate to attract fresh investment and also to facilitate the growth and expansion of the industry in the state. It was further submitted that the assessee company was following mercantile system of accounting therefore it had booked its entitlement to electricity duty exemption in its books of accounts for the year under consideration whereas the same had not been received by the assessee, therefore the electricity duty exemption entitlement had been reduced from taxable income while filing the income tax return. It was further submitted that entries in the books of accounts are not decisive or conclusive for claiming any deduction or expenditure under the Income Tax Act, the entries in the books of accounts are made as per the accounting methods regularly adopted by the assessee, however, such entries are not decisive or conclusive for determining the real income for tax purposes. It was pointed out that the assessee had claimed the electricity duty exemption under the Industrial Policy 2003 of the Punjab State Government which was approved by the authorities vide letter dt. 19/03/2012 on the basis of which the assessee had included the entitlement in its income. However as per the procedure, the eligibility of the assessee for electricity duty exemption was to be judged by a separate empowered committee and the department was in the process to send the case to empowered committee for approval of eligibility certificate. Therefore the eligibility and entitlement of the assessee to exemption from electricity duty was still under consideration of the department and the income had not accrued to the assessee in real sense and due to pendency of verification of compliance of eligibility conditions, the assessee had not even filed its claim before the department for benefit of exemption. It was further submitted that the assessee company was entitled for electricity duty exemption on account of expansion at the existing unit in the State of Punjab, and that the said electricity duty exemption is available under the Industrial Incentive Scheme of Govt. of Punjab with a view to promote growth of Industry in the state and to push & support for consolidation & expansion of existing industries. This electricity duty exemption is based upon the fixed capital investment, therefore, the electricity duty exemption of Rs. 2,25,00,000/- in respect of increase in average consumption of electricity due to expansion of production being in the nature of subsidy a capital receipt and thus not taxable in the hands of the assessee. Reliance was placed on the following case laws:
• CIT-1, Kohlapur Vs. Chaphalkar Brothers Pune reported at [2018] 400 ITR 279 (SC) • Pr. CIT-1, Kolkata Vs. Shyam Steel Industries Ltd. reported at [2018] 303 CTR 628 (Calcutta) • CIT- Kol-IIk Vs. Keventer Agro Ltd. reported at [2018] 256 Taxman 437 (Calcutta) • LG Electronics India (P.) Ltd. Vs. ACIT reported at [2017] 187 TTJ 470 (Del Trib.) • Pr. CIT Vs. M/s Nitin Spinners Ltd. in dt. 19/09/2019 (Jodh Trib) • CIT Vs. Ponni Sugars and Chemicals reported at [2008] 306 ITR 392 (SC)
In his rival submissions the Ld. CIT DR reiterated the observations made by the authorities below and strongly supported the impugned order passed by the Ld. CIT(A). It was further submitted that since the assessee had booked the entitlement as income on accrual basis in its books of accounts which are maintained on regularly employed methods and were being audited regularly, therefore, the assessee cannot escape the liability to tax by changing its stand. It was also submitted that the income became taxable on the date when the same was recorded in the books of accounts therefore electricity duty exemption was rightly treated as revenue receipt and taxed during the year under consideration.
We have considered the submissions of both the parties and perused the material available on the record. In the present case it is not in dispute that the assessee in view of Industrial Policy 2003 of the State Government of Punjab became eligible for claiming the electricity duty exemption. However the claim of the assessee was that the said entitlement although accrued but had not been received during the year under consideration, as the case of the assessee was to be examined by a separate Empowered Committee constituted by the State Government. It was also the claim of the assessee that due to pendency of verification of compliance of eligibility condition the assessee had not even filed its claim before the Department for benefit of exemption. The said claims of the assessee are not rebutted by bringing cogent material on record, therefore the electricity duty exemption entitlement although booked in the books of accounts on estimate basis was rightly reduced from the taxable income while filing the Income Tax Return.
On a similar issue the Hon'ble Apex Court in the case of CIT Vs. Ponni Sugars and Chemicals Ltd. (supra) held as under:
''The character of the receipt of a subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existing unit then the receipt of the subsidy would be on capital account.”
23.1 Similarly the Hon'ble Kolkata High Court in the case of Pr. CIT Vs. Shyam Steel Industries Ltd. (supra)held as under:
� When an entrepreneur sets up a business unit, particularly a manufacturing unit, or embarks on an exercise for expanding an existing unit, the entrepreneur factors in the cost of setting up the unit or the cost of its expansion and the costs to be incurred in running the unit or the expanded unit. It is the totality of the capital expenditure and the expenses to run it that are taken into account by the entrepreneur. The investment by an entrepreneur by way of capital expenditure is recovered over a period of time and has a gestation gap. If the running expenses are made cheaper by way of any subsidy or incentive and made applicable only to new units or expanded units, the realisation of the capital investment is quicker and the decision as to the quantum of capital investment is influenced thereby. That is the exact scenario in the present case where the lower operational costs by way of subsidy on consumption of power helps in the quicker realisation of the capital expenditure or the servicing the debt incurred for such purpose. � In view of the acceptance of the wider ambit of the "purpose test" and the scheme in this case being available only to new units and units which have undergone an expansion, the real purpose of the incentive in this case has to be seen as a capital subsidy and has to be regarded, as such, as a capital receipt and not a revenue receipt. � In the result, the revenue's appeal is dismissed.
23.2 A similar view has been taken by the Hon'ble Rajasthan High Court in the case of Pr. CIT Vs. M/s Nitin Spinners Ltd. in order dt. 19/09/2019 (supra) wherein it has been held as under:
9. As far as the electricity subsidy is concerned, the third ground i.e. electricity subsidy under the Raj as than Investment Promotion Scheme was held to be a capital receipt by the CIT(A). It was held that this was granted in larger public interest and it was linked to capital interest, a similar scheme was that the amounts received in the similar scheme have to be capital receipt by a Division Bench of this Court in Commissioner of Income Tax, Ajmer vs. Shree Cement [D.B. Income Tax Appeal No.204/2010, decided on 22.08.2017]. This Court notices that the ratio of the rulings in Ponni Sugars & Chemicals Ltd.(supra) and Sahney Steel & Press Works Ltd. & Ors. (supra), applied. Consequently, we find no infirmity with the approach of the ITAT on this aspect as well.
In the present case also the assessee was eligible for the incentive on the basis of Industrial Policy 2003 of Government of Punjab on account of expansion of the existing unit and it shall be received by the assessee by way of adjustment in electricity bills of future consumption. However the assessee had not received any benefit by way of adjustment or reimbursement for the year under consideration, so it was a hypothetical income which may or may not materialize to its money value. Therefore, the addition made by the A.O. and sustained by the Ld. CIT(A) was not justified, accordingly the same is deleted.
Ground No. (2) is consequential to Ground No. (1) of the assessee’s appeal and Ground No. (iii) of the Departmental appeal and was not argued by either of the parties, so do not require any adjudication on our part.
In the result, appeal of the Department is dismissed and that of the assessee is allowed.
(Order pronounced in the open Court on 27/02/2020)