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Facts
The appeals involve common issues related to the disallowance of leave encashment provisions, treatment of scrap sales, levy of interest under sections 234B, 234C, and 234D, disallowance under section 14A, and the nature of incentives received under the Foreign Trade Policy (FPS and SHIS schemes).
Held
The Tribunal held that leave encashment provisions should be allowed on actual payment basis. Scrap sales were considered part of turnover. Interest under section 234C is to be calculated on returned income. Disallowances under section 14A were deleted where the assessee's own interest-free funds exceeded investments or where dividend income was minimal. Incentives under FPS and SHIS schemes were treated as capital receipts, not liable to tax.
Key Issues
Key issues include the allowability of leave encashment provisions, the tax treatment of scrap sales, the calculation of interest, disallowances under section 14A, and the taxability of government incentives received under export promotion schemes.
Sections Cited
143(3), 43B, 234B, 234C, 234D, 14A, 10B, 115JB
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Income Tax Appellate Tribunal, DELHI “B” BENCH: NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
Appellant by Shri Ajay Vohra, Sr.Adv. & Shri Tavish Verma, Adv. Respondent by Ms. Suman Malik, CIT DR & Shri Rajesh Kuamr Dhanesta, Sr.DR Date of Hearing 04.06.2025 Date of Pronouncement 04.06.2025 ORDER PER MANISH AGARWAL, AM :
These captioned cross-appeals are filed by the Revenue and the assessee for various Assessment Years. Since in all the appeals, various issues are common, therefore, these are decided separately by a common order for the sake of convenience and brevity.
First we take appeal of the assessee and of the Revenue in ITA 2. No. 826/Del/2016 & for AY 2011-12 respectively.
[Assessee’s appeal] [Revenue’s appeal] & [Assessment Year : 2011-12]
3. These are cross-appeals filed by the assessee and by Revenue against the order of Ld. Commissioner of Income Tax (A)-5, Delhi [ld. CIT(A)] in Appeal No. Del/CIT(A)-5/0169/2014-15 for AY 2011- & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 12 arising from the assessment order dated 31.03.2014 passed u/s 143(3) of the Income Tax Act, 1961 (the Act).
Brief facts of the case are that assessee filed its return of income, declaring total income at INR 2,96,03,28,450/- on 30.11.2011 which was revised on 30.03.2013 at an income of INR 291,81,73,730/-. The case was taken up for scrutiny and after considering the submissions made, assessment was completed vide order dated 31.03.2014 passed u/s 143(3) of the Act by making additions/disallowances of INR 16,25,84,717/- and accordingly, the total income was assessed at INR 3,08,07,58,450/-.
Against this order, an appeal was filed before Ld.CIT(A) wherein Ld.CIT(A) partly allowed the appeal of the assessee against which the present appeal preferred by the assessee and the Revenue.
The assessee has taken the following grounds of appeal:-
1. A. "On the facts and in circumstances of the case and in law, the CIT (A) has erred in upholding Assessing officer's (AO) act of disallowing appellants genuine business expenditure being provision made during the year for leave encashment on actuarial basis amounting to Rs. 5,30,84,792/-. B. On the facts and in circumstances of the case and in law, the CIT (A) has erred in upholding Assessing officer's act that provision of leave encashment falls under the ambit of section 43B.
2. A. On the facts and circumstances of the case and in law the learned CIT (A) erred in holding that scrap sales of Rs 4,90,87,775/- cannot be reduced from cost of raw material but would form part of the total turnover of the appellant. Page | 3
B. The decision of the learned CIT (A) that scarp sales is part of appellant turnover is contrary to the decision of the Hon'ble Supreme Court in the case of CIT V Punjab Stainless Steel Industries 364 ITR 144. 3. On the facts and circumstances of the case and in law the learned CIT(A) erred in dismissing appellant ground of appeal against charging of interest u/s 234B, 234C & 234D when prepaid taxes were more than the tax payable determined on assessment.
4. That the above grounds of appeal are without prejudice to each other.
5. Appellant craves for grant of permission to add, alter or withdraw any ground of appeal at or any time before the hearing.”
7. And the Revenue has taken the following grounds of appeal:- 1. “That the order of the learned CIT (Appeals) is erroneous & contrary to facts & law.
2. That the Ld. CIT (A) has erred in law by ignoring the fact that the assessee company did not submit the relevant details inter-alia detail of the employee who and when they traveled to Mumbai and used the property as guest house. The Ld. CIT (A) is of the view that AO has not established by any material that such expenditure was for non business purposes and no disallowance can be made on presumption. The Ld. CIT(A) has relied upon clause 7 of the rent deed wherein it is mentioned that premises would be occupied by officers, the family members, bonafide guests etc. whereas the Ld. CIT(A) has ignored the submission of the assessee qua the usage of the said property and qua lease deed qua permissibility of usage of the impugned property. The assessee company vide submission dated 05.12.2013 had claimed that this property being Flat at 35th Floor of a building at Mumbai, was being used as an office though the lease deed & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 however stated that the said property could have been used only as a residence. 3. (a) That on the facts and circumstances of the case & in- law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.6,08,15,000/-/u/s. 14A. (b) That the Ld. CIT(A) has erred in-law by net considering the fact that the assessee is not maintaining a separate books of account with respect to investment portfolio and that some expense be it legal, financial, administrative etc. must have been incurred for the purpose of earning the dividend. As per the CBDT's Instruction No.5/2014 dated 11.02.2014 Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. 4. (a) That the Ld. CIT(A) has erred in law by ignoring the fact that some of these income are in the nature of insurance claim received, Rent recovered from employee etc which income cannot be said to be profits and gains derived by an undertaking from export of article or things though deduction u/s 10B is permissible only of such profits and gains which are derived by a 100% export oriented undertaking. (b) That the Ld. CIT(A) has ignored the facts as stated in Sub-section (3) of section 10B that this section applies to the undertaking. If the sale proceeds of articles or things or computer software exported out of India are received in or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the ends of the previous year or, within such further period as the competent authority may allow in this behalf. Since income from insurance, rent recovered from employees and income from scrap sale are not received in convertible foreign exchange hence it does not qualify for the deduction u/s 10B of the Act.
& 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 5. That the appellant carves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of hearing.” ITA 8. First we taken up the assessee’s appeal in No.826/Del/2016 [Assessment Year 2011-12]..
9. Ground Nos.1(a) and (b) are in relation to the disallowance of provision of leave encashment claimed by the assessee.
10. Before us, Ld. AR for the assessee though not pressed the ground on merits however, made a request that the deduction towards leave encashment be allowed on actual payment basis i.e. in the year when payment of leave encashment would be made.
On the other hand, the ld. CIT DR supported the orders of the lower authorities regarding the disallowance made however, has not raised any objection to the request of the assessee with regard to the allowability of expenses on actual payment basis.
12. After considering the submissions, we do not comment upon the claim of the assessee made in the grounds of appeal regarding allowability of provisions for leave encashment however, we are in agreement with the request made by the ld. AR that the expenses towards leave encashment would be allowed in the year of actual payment. We direct accordingly. The grounds of appeal No. 1(a) & 1(b) are thus, partly allowed.
13. The Ground No.2 is not pressed, thus the same is dismissed.
& 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 14. Ground No.3 raised by the assessee is against the levy of interest u/s 234B, 234C & 234D of the Act wherein interest levied u/s 234B is consequential in nature and interest u/s 234D is on account of refund already issued to the assessee. With regard to the levy of interest u/s 234C, Ld.AR argued that interest u/s 234C is leviable for the default in payment of advance tax installments and is payable at the time of filing of return of income. Since advance tax is to be calculated on the basis of estimation of income, thus the interest u/s 234C is to be levied on the income declared in return filed by the assessee however, in the instant case the interest u/s 234C is charged on the assessed income. He thus prayed that interest u/s 234C should be charged on the returned income and he requested accordingly.
On the other hand, Ld.CIT DR for the Revenue stated that it is a factual matter and may be sent to the AO for verification.
Heard the contentions of both parties and perused the material available on record. On the issue of levy of interest u/s 234B and 234D, no argument was made by ld. AR of the assessee. Regarding levy of interest u/s 234C, it is submitted that it should be levied on the tax payable on the income declared in the return of income filed. If a taxpayer fails to pay or delays in payment of advance tax, then it may be affected by several measures under Section 234C of the Income Tax Act. The tax department expected the advance tax payments to be received on time along with the four scheduled instalments, once each quarter of a financial year. Failure to do so, the taxpayer may have to deal with an interest & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 penalty under Section 234C of the Income Tax Act. As per the provisions of section 234C of the Act, interest is levied either on failure to pay advance tax by the assessee or on shortfall in payment of advance tax as compared to tax due on returned income. In the present case, the dispute is whether the interest under section 234C of the Act would be calculated on “returned income” or on “assessed income”. As observed above, the interest u/s 234C is to be charged on the advance tax liability admitted by assessee i.e. on the income declared in the return of income filed. Accordingly, the AO is directed to limit the levy of interest under Section 234C of the Income Tax Act to the returned income rather than the assessed income. This view of ours find supports from the order of coordinate bench of ITAT Mumbai in the case of Strides Pharma Sciences Ltd. vs DCIT in dt. 06.04.2022. We further direct the AO to charge interest u/s 234B on the income finally computed in terms of the order of the Tribunal. With these directions, Ground No.3 raised by the assessee is partly allowed.
Ground Nos. 4 & 5 raised by the assessee are general in nature, need no separate adjudication.
The assessee vide letter dated 23.09.2020 has filed two additional grounds of appeal which reads as under:-
1. “That on the facts and circumstances of the case and in law, the assessing officer, education cess paid by the appellant, should be directed to be allowed as deduction, in terms of the law clarified by the Hon’ble Bombay High & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 Court in the case of Sesa Goa Ltd. vs JCIT 117 taxmann.com 96 and other decisions.
2. That on the facts and circumstances of the case and in law, government grant under the Focus Product Scheme (FPS) offered to tax, being in the nature of a capital receipt not liable to tax, should be directed to be excluded from the taxable income of the appellant under normal provisions of the Act.”
19. Before us, it is submitted by ld. AR that since these issues are taken up for the first time before the ITAT in the nature of additional ground, therefore, the same may kindly be admitted for adjudication. The ld. AR placed reliance on the proposition laid down by the Hon'ble Supreme Court in the case of National Thermal Power Company Ltd reported in 229 ITR 383 [Hon'ble Supreme Court] and submits that the issue which is purely legal and which goes to the root of the matter and no new facts are required to be invoked, then the same should be admitted for adjudication.
The ld. DR vehemently contended that when the grounds were not raised before the lower authorities thus the same cannot be raised before the Tribunal by way of additional ground.
Heard both the parties. Since both these grounds of appeal are legal in nature and the assessee requested for admission of same by placing reliance on the order of Hon’ble Supreme Court in the case of NTPC vs CIT [1997] 229 ITR 383 (SC) and Jute Corporation of India Ltd. vs CIT (1991) 187 ITR 688 (SC). After perusing the grounds of appeal, we find that both these grounds of & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 appeal are legal in nature and need no verification on the part of the AO therefore, the same are admitted for adjudication.
22. Additional Ground No.1 is not pressed by the assessee during the course of hearing hence, dismissed.
23. Additional Ground No.2 raised by the assessee wherein it is requested inadvertently the incentive received under Foreign Trade Policy as ‘Focus Product Scheme (FPS) was declared as revenue receipts as against the capital receipts.
Before us, Ld. AR of the assessee submits that during the year under appeal, in terms of Foreign Trade Policy, 2004 promoted by the Government of India, various schemes were promoted for promotion of the business which includes FPS, focus product scheme etc. Vide Foreign Trade Policy, 2006 under special focus initiations, the FPS was introduced with the objective to provide incentive to export which are highly employment intensity under rural and semi-urban areas. Under this scheme, Government grant of INR 5,28,08,142/- was received by the assessee which was credited in the P&L Account as Government grant & incentive and as revenue receipts. The claim of the assessee is that it had wrongly treated the same as revenue receipt. Since this incentive is given to promote the employment opportunities in rural and semi-urban areas and to ensure optimum utilization of human resources therefore, it is a capital receipt in nature and not liable to tax. Therefore, Ld.AR requested that the income shown under the head “Profit & Loss Account” at INR 5,28,08,142/- as Revenue receipts deserves to be held as capital receipts and deserves to be reduced Page | 10 & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 from total income of the assessee. For this, he placed reliance on the judgement of hon’ble Rajasthan High court in the case of PCIT Vs. Nitin Spinners Ltd. reported in (2020) 116 Taxmann.com 26 (Raj.) and of the Co-ordinate Bench of the Delhi Tribunal in the case of Narayana Industries vs ACIT in ITA No.6153/Del/2017.
On the other hand, Ld. CIT DR for the Revenue opposed the request of the assessee and submits that the incentive is a revenue receipt as has rightly been declared by the assessee in the financial statements and therefore, the claim of the assessee taken through additional ground of appeal deserves to be dismissed.
Heard both the parties and perused the material available on record. It is seen that this incentive is given in terms of the Foreign Trade Policy where FPS scheme was promoted with the object to promote the employment opportunities in rural and semi urban areas. It is evident that this claim of treating the incentives received under Foreign Trade Policy as capital receipts is made for the first time before us by way of additional ground. We find that Hon'ble Supreme Court in Goetz India Ltd. Vs. CIT, reported in [2006] 284 ITR 323 and Hon'ble Bombay High Court in case of CIT Vs. Prithvi Brokers and Shareholders Pvt. Ltd., reported in [2012] 349 ITR 336 (Bom.) has held that the appellate authority can entertain a fresh claim made by the assessee, even if such a claim was not made in return of income or by way of revised return of income. We have already admitted the additional grounds of appeal taken by the assessee, accordingly the claim made by the assessee & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 through additional ground filed is hereby admitted for adjudication on merits.
The brief facts of the case pertaining to this issue are that the assessee in its original return of income treated the incentives received under the foreign trade policy as revenue receipt and accordingly included the same in the computation of total income. Before us, in terms of application for the admission of additional grounds of appeal filed on 23.09.2020, the assessee has raised a claim that incentives received under the Foreign Trade Policy, towards FPS should be treated as capital receipt. The assessee by placing reliance upon the decision of the Hon’ble Supreme Court in Sahney Steel And Press Works Vs. CIT 228 ITR 252 (SC) and in the case of CIT Vs. Ponni Sugar & Chemicals ltd. (2008) (306 ITR 392) submitted that considering the objective for which the subsidy has been granted, the same should be considered as capital receipt. It was the submission that the overall objective of the FPS schemes under the Foreign Trade Policy is to expand the employment opportunities. The assessee is a manufacturer of plates and pipes, re-rolling of cold rolled strips and coating of pipes and Financing Business & investment in Mutual Funds. Assessee is also engaged in exports some of the products to various countries for which the government provides certain subsidies under the Foreign Trade Policy. As noted above, the assessee initially, in its return of income, treated the subsidies received as Revenue receipts and offered the same to tax. However, before us, the assessee filed additional grounds claiming that the subsidy received under the & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 FPS scheme is capital in nature and therefore cannot be included in the total income of the assessee.
Now we analyzed the objectives of subsidies received under the aforesaid scheme. The Government of India notified the Foreign Trade Policy, 2009-14 under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 vide notification No 1 (RE- 2012)/2009-14 dated 05.06.2012. The Policy contains a Chapter on Special Focus Initiatives, wherein the objective of special focus incentives given for various sectors (FMS and FPS) is specified as under: "(a) with a view to continuously increasing our percentage share of global trade and expanding employment opportunities, certain special focus initiatives have been identified / continued for Market Diversification, Technological Upgradation, Support to status holders, Agriculture, Handlooms, Handicraft, Gems & Jewellery, Leather, Marine, Electronics and IT Hardware manufacturing Industries, Green products, Exports of products from North- East, Sports Goods and Toys sectors Government of India shall make concerted efforts to promote exports in these sectors by specific sectoral strategies that shall be notified from time to time"
From the plain reading of the relevant policy document of the Government of India, it is clear that the objective of the subsidy granted under FPS is to increase the employment generation in certain sectors. The object of the subsidy under this scheme was not to enable the assessee to run the business more profitably. The object was primarily to provide encouragement and support, which would create benefits of enduring nature, for the Industry as a whole in certain sectors of economy.
Similar issue of the subsidy granted under the FPS scheme came up for consideration before the Hon’ble Rajasthan High Court in PCIT Vs. Nitin Spinners Ltd. (supra), wherein the Hon’ble High Court observed as under: “8. As far as the question with regard to Focus Marketing Scheme was concerned, apparently the Central Government gave the subsidy to enhance Indian export potential in the international market. It was not granted to meet the cost of expenditure to meet the competition of the Indian textile market. The ITAT took note of judgment in Ponni Sugars & Chemicals Ltd. (supra) and held that the amount was not an export incentive, but rather capital receipt and therefore, not taxable. This Court is of the opinion that there is no infirmity with the reason.”
It is also relevant to mention here that the Hon’ble Supreme Court dismissed the Revenue’s Special Leave Petition in PCIT Vs. Nitin Spinners Ltd., [2021] 283 Taxman 2(SC), against the aforesaid decision of the Hon’ble Rajasthan High Court.
This issue has come up before the Co-ordinate Bench of ITAT Delhi in the case of Narayan Industries (supra) wherein the Co- ordinate Benche in terms of its order dated 30.05.2022 has admitted the same as capital receipts by making following observations:- Focus Products Scheme: 7. “During the year under consideration, the assessee received consideration amounting to Rs.1,91,78,974/- from sale of Focus Scrip/ License received under “Focus Products Scheme” under the Foreign Trade Policy which was claimed as deduction under section 80-IC of the Act. 8. In the assessment order, the Assessing Officer denied deduction of income received from sale of FPS on the ground that such income is not related to manufacture or sale of the products of the undertaking and is only related to a post manufacturing event, which is not eligible for deduction under section 80-IC of the Act as per the & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 decision of the Hon’ble Supreme Court in the case of Sterling Foods 237 ITR 579 (SC).
On appeal, the ld. CIT(A), vide order dated 28.07.2017 upheld the addition made by the assessing of ficer and held that on perusal o f the policy it cannot be upheld that the consideration received on sale of focus scrip/ License is a reimbursement of cost incurred since the scrip is available only post export. It was further held that consideration received on sale of focus scrip / license cannot be considered as profits and gains derived from industrial undertaking by placing reliance on the judgment of Hon’ble Supreme Court in the case of Liberty India Ltd 317 ITR 218 (SC).
We find that the following case , similar issue of subsidy raised for the first time before the Tribunal, was admitted and duly adjudicated by the Tribunal: * Shree Bala ji Alloys vs. ITO 127 TTJ 129 (Asr. ITAT)-Confirmed by Supreme Court in 287 CTR 459 (SC) * Indo Java & Co. vs. IAC 30 ITD 161 (Del ITAT)(SB) * Crystal Crop Protection Pvt. Ltd. vs. DCIT in of 2016 (Del. ITAT) * Tripti Manthol Inds vs. ITO in o f 2011 (Asr . ITAT) 11. The Government of India in its Foreign Trade Policy 2004 started Special Focus Initiatives with an object to continuously increase our percentage share of global trade and expanding employment opportunities especially in rural and semi-urban areas. Under the policy of Special Focus Initiative certain special focus initiatives for market diversification, technological upgradation, support to status holders were identified for which specific schemes like Focus Market Scheme (FMS), Focus Product Scheme (FPS), Technological Upgradation Fund Scheme (TUFS), Status Holders Incentive Scheme (SHIS) were started.
In Foreign Trade Policy 2006, under the Special Focus Initiatives, Focus Product Scheme (FPS) was introduced with an objective to incentivize export of such products which have high employment intensity in rural and semi-urban areas, so as to offset the inherent infrastructure inefficiencies and other associated costs involved in marketing of these products. The scheme was launched in 2006 and subsequently, several amendments were made to the scheme by adding more products eligible for export incentives under the scheme and giving different rate of duty credit scrip concessions.
Focus Product Scheme (FPS) was first introduced with the objective to incentivize export of such products which have high export intensity/ employment potential, so as to offset infrastructure & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 inefficiencies and other associated costs involved in marketing of these products. The scheme was launched in 2006 and subsequently, several amendments were made to the scheme by adding more products eligible for export incentives under the scheme and giving dif ferent rate o f duty credit scrip concessions.
The amount of incentive received under Technology Upgradation Fund Scheme (TUFS) was considered as a Revenue subsidy in the following cases: * CIT vs. Shyam Lal Bansal 200 Taxman 14 (P&H HC) * CIT vs. Gloster Jute Mills Ltd. 416 ITR 458 (Cal. HC) * Jai Bhagwan Oil & Flour Mills vs. Union o f India (2009) 14 SCC 63 * Shiv Shakti Flour Mills (P.) Ltd vs. CIT 390 ITR 346 (Gauhati HC) * DCIT vs. Sutlej Textiles & Industries Ltd in ITA 5142/Del/2013 (AY 2009-10) * DCIT vs. Sutlej Textiles and Industries Ltd: ITA 337/Del/2015 (AY 2011-12) * DCIT v. Sutlej Textiles and Industries Ltd.: 44 CCH 287 (Kol.ITAT) * DCIT vs. BSL Ltd.: 183 ITD 675 (Kol Trib.) * DCIT vs. JK Cement Ltd.: ITA 499/Lkw/2010 (Lucknow Trib.) * Sipca India (P.) Ltd. vs. DCIT: 186 TTJ 289 (Kol Trib.) * DCIT vs. Gloster Jute Mills Ltd. 33 ITR (Trib) 322 (Kol. ITAT) * Suvidha Spiners Pvt. Ltd. vs. DCIT:
& 66/Jodh/2018 (Jodhpur Tribunal) * Crystal Crop Protection Pvt. Ltd. vs. DCIT: of 2016 (Del. ITAT) 15. In light of the aforesaid, applying the ‘purpose test’ laid down by the Hon’ble Supreme Court in various decisions, particularly Sahney Steel (supra) and Ponni Sugars (supra) and also the direct judicial precedents referred supra, we hold that Focus Products Incentive in the nature of capital receipt not liable to tax under the provisions of the Income Tax Act, 1961.”
Thus, when the objective of the aforesaid subsidies has been admitted to be to encourage industries by providing industrial growth, technological upgradation and increase the employment generation in certain sectors, in our considered opinion having regard to the 'purpose test' laid down by the Supreme Court in the aforementioned cases, the amounts received by the appellant during the year, under FPS Schemes as subsidy should be treated & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 as capital receipt in its hands, not includible in the total income. Accordingly, the additional ground of appeal No. 2 is allowed.
In the result, appeal of the assessee is partly allowed.
Now, we take up the Revenue appeal in [Assessment Year 2011-12].
Ground No.1 is general in nature, needs no adjudication hence, dismissed.
Ground No.2 raised by the Revenue is with respect to the deletion of the disallowance of rent of INR 12,00,000/- paid for the guest house maintained by the assessee company. The AO while making the disallowance, observed that the assessee paid rent of the flat at Mahalaxmi, Mumbai and during the course of assessment proceedings, no details were submitted to established that the said flat was used for the purpose of business. Since the same was not used for the purpose of business, AO disallowed the claim of the rent paid. Before ld. CIT(A) assessee filed details of the persons who stayed at the said flat during their visit to Mumbai office of the assessee in connection with the performance of their official duties and thus it was claimed that the said flat was wholly and exclusively used for the purpose of business. After considering the same, ld. CIT(A) deleted the disallowance of rent paid of the said flat as made by the AO.
Before us, Ld.CIT DR supports the order of the AO and submits that when the flat was taken for rent for the purpose of & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 stay of employees and before AO, the assessee was failed to establish that the same was used for the purpose of business, the AO has rightly disallowed the expenses claimed towards the rent paid of the said flat as incurred for non-business purpose. He prayed accordingly.
On the other hand, Ld.AR supported the order of Ld.CIT(A) and submits that the flat was used for the purpose of business where the employees coming in the course of performance of their official duties to Mumbai stayed in the this flat and thus the said flat was wholly and exclusively used for the business and the payment of rent was made under business exigencies and therefore, the rent paid cannot be held as incurred for non-business purposes. He therefore submitted that the ld. CIT(A) has rightly allowed the rent paid as business expenses and prayed for confirmation of order of Ld. CIT(A) on this count.
After hearing both the parties, we find that Ld.CIT(A) has discussed this issue in para 5.2 to 5.3 of the order and after considering the actual use of the said flat for the purpose of business, allowed the rent. The relevant observations of Ld. CIT(A) as contained in para 5.2 & 5.3 are as under:- “5.2. I have considered the rival contentions of the appellant and the AO in this regard. The contention of the AO that the said expenditure is not verifiable is not borne out from the records. Undoubtedly the lease deed permitted the appellant to use the impugned premises only for residential purposes and it is nobody's case that a guest house cannot be described for residential purposes. The appellant has submitted the rent deed of the premises during assessment proceedings and the same has been perused. Perusal of the lease deed shows that none of the clauses debar the appellant from using the demised premises from being used by officers of the company. In fact clause 7 specifically provides that the premises would be Page | 18 & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 occupied by officers, their family members, bonafide guests and servants of such officers. I also agree with the AR that the said accommodation has not been provided to any of its employees and therefore the question of charging the perquisite value of the same in the hands of the employee does not arise. The appellant has submitted that the same has been used as guest house for its employees travelling to Mumbai from its other units who are mainly from HO. A perusal of the financials of the appellant reveals that it had incurred an expenditure of Rs 3632 crores during the year under consideration which has been allowed by the AO. During the course of hearing AR of the appellant pointed out to me that AO has disallowed the Rental expenditure of Rs. 12,00,000/- of Mumbai flat by treating the same to be of personal in nature. He has argued before me that it is a settled principle of law that in case of companies no expenditure can be disallowed by holding the same to be of personal in nature. The decision of the Gujarat High Court in the case of Sayaji Iron & Eng. Co. Ltd. V CIT 253 ITR 749 has been followed in the following jurisdictional ITAT decisions:- (i) MITSUI & co. India p. Ltd. V ADDL. CIT ITAT Delhi E Bench in as decided on 3/6/2011 (ii) DCIT v Haryana Oxygen Ltd. 76 ITD 32 (DEL) (iii) Midland International LTd. V DCIT 109 ITD 198 (Del). 5.3. I have perused the decisions in hand. These decisions pertain to disallowance of car expenses, telephone expenses etc. and the ratio of these decisions will equally apply to issue before hand. Under the circumstances I do not find any valid justification for disallowing the same. In any case AO has not established by any material that such expenditure was for non business purposes. It is a settled law that no disallowance can be made on presumption; hence addition made in this regard is deleted. Ground no.4 is allowed.”
On perusal of the findings, we find no infirmity nor the Revenue has been able to controvert these findings of Ld. CIT(A) before us by bringing on record any cogent material and merely on assumptions the disallowance was made. Therefore, we find no reasons to interfere in the order of ld. CIT(A) on this issue which is hereby upheld. Accordingly, Ground No.2 raised by the Revenue is dismissed.
& 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 42. Ground No.3 of the Revenue’s appeal is against the deletion of disallowance of INR 6,08,15,000/- made by invoking the provisions of section 14A r.w.Rule 8D of the Income Tax Rules, 1962 (“the Rules”).
Brief facts leading to this issue are that the AO observed that the assessee made investment in equity shares of various companies at INR 65,430.84 lakhs however, in the computation of income had made suo-moto disallowance of INR 5,15,091/- only expenses incurred for earning exempt income. The AO further observed that the interest bearing funds were utilized for making the investment and thus invoked the provision of section 14A and computed the disallowance in terms of Rule 8D(2) of the Rules and worked out the total disallowance at INR 6,08,15,000/-. In first appeal, Ld.CIT(A) has deleted the same.
Before us, Ld. CIT DR for the Revenue supported the order of AO and submits that the AO has made disallowance in terms of section 14A r.w.Rule 8D(2) where INR 5,15,091/- was the expenses directly related to such income and INR 3,56,00,000/- was disallowed out of interest payment and INR 2.47 crore was disallowed @ 0.5% of the average value of investments. Ld.CIT DR thus submits that the disallowance was rightly made by AO which order deserves to be restored.
On the other hand, Ld.AR for the assessee supports the order of Ld. CIT(A) and regarding the deletion of disallowance of INR 3,56,00,000/- and submits that Ld. CIT(A) observed that the assessee’s own funds are more than investments made and Page | 20 & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 therefore, by following the judgements of various Hon’ble High Courts deleted the same. Regarding disallowance of INR 2.47 crores, it is submitted that only dividend yielding investments should be taken into consideration. He prayed accordingly.
Before us, Revenue has not been able to controvert the findings of Ld.CIT(A). Moreover, now it is settled law where the assessee’s own interest free funds are more than the amount of investment which yield exempt income, no disallowance should be made u/s 14A of the Act. Therefore, we do not find any reason to interfere in the order of Ld.CIT(A) on this score and accordingly, the deletion of INR 3.56 crores by Ld. CIT(A) is hereby upheld. Regarding the administration and other expenses at INR 2.47 crores, it is seen that the assessee was having dividend income of INR 12,939/- only and as against this, assessee sue moto made disallowance of INR 5,15,901/- while computing the total income. The disallowance so made represents expenses to administer and manage the investment. The Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT (New Delhi) [2018] 402 ITR 640 (SC) has held that “the disallowance u/s 14A should not be in excess of the income earned”. Further, the Hon’ble High Court in the case of Cheminvest Ltd. vs CIT-IV [2015] 61 taxmann.com 118 (Delhi) held that “where no dividend income is earned, no disallowance be made”. In the present case, the assessee has dividend income of INR 12,939/- whereas the disallowance was made of INR 6,08,15,000/-. Thus, by following the judgments of Hon’ble Supreme Court in the case of Maxopp Investments (supra) and of Hon’ble jurisdictional High Court in the case of Cheminvest & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 (supra), we find no reason to make disallowance u/s 14A more than the dividend income earned by the assessee. However, since the assessee itself has disallowed a sum of INR 5,15,901/-, thus, we find no reason to make further disallowance u/s 14A of the Act. In view of these facts, we find no infirmity in the order of Ld.CIT(A) in deleting the disallowance made by AO and the said order is hereby upheld on this issue. Accordingly, the Ground of appeal No.3 raised by the Revenue is dismissed.
47. Ground No.4 raised by the Revenue is in relation to the allowability of deduction u/s 10B on the other income in the nature of insurance claim etc. The AO has reduced the amount u/s 10B of the Act by INR 4,74,84,925/- by holding that the other income received in the shape of scrap sales, rent recovery from employees, insurance claims etc. is not an income derives from the export activity and therefore, reduced the claim of deduction u/s 10B by INR 4,74,84,925/-. In the first appeal, Ld.CIT(A) has allowed the same therefore, the Revenue is in appeal before the Tribunal with regard to such disallowance.
48. Before us, Ld. CIT DR for the Revenue supports the orders of the AO and submits that the deduction u/s 10B of the Act should be restricted to the profit earned from export turnover only and other income declared by the assessee such as scrap sales, insurance claim etc. being not part of the export turnover, the profit thereon is not entitled for exemption u/s 10B of the Act and he prayed for the confirmation of the order of AO.
& 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 49. On the other hand, Ld.AR for the assessee supported the order of Ld.CIT(A) and the submissions that Special Bench of ITAT in case of Maral Overseas Ltd. vs ACIT [2012] 16 ITR 565 (Indore-Trib.) [SB] after considering the judgment of Hon’ble Supreme Court in the case of Liberty India vs CIT [2009] 317 ITR 218 (SC) has held that “there is a distinction between the provision of section 10A & 10B vis-a-vis section 80IA & 80IB & 80HH of the Act inasmuch as wherein for the purpose of computing deduction u/s 10A & 10B, entire business profit is to be considered as eligible for deduction whereas in section 80IA & 80IB & 80HH, the profits derived from such business is to be considered as deduction.” Therefore, Ld.AR submits that Ld.CIT(A) has rightly deleted the disallowance made out of deduction claimed u/s 10B of the Act and he prayed accordingly.
Heard both the parties and perused the material available on record. In the instant case, it is seen that the AO has reduced the amount of deduction u/s 10B of the Act on account of scrap sales, insurance claim and other rent recovered from employees and damages recovered totaling to INR 5,10,11,393/- being not eligible for deduction u/s 10B of the Act and reduced the amount of deduction u/s 10B by INR 4,74,84,925/- claimed by the assessee. It is further seen that while allowing the deduction, Ld.CIT(A) has followed the decision of Special Bench of ITAT in the case of Maral Overseas Ltd. vs ACIT (supra) wherein it is held that for the purpose of computation of amount of deduction u/s 10B of the Act, entire business profit is to be considered as the eligible profit. The relevant observations in para 6.1 of Ld. CIT(A) are as under:-
& 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 6.1. In order to decide this ground, it would be necessary to recapitulate the facts. The appellant claimed business income to the tune of Rs.105,05,60,627/- to be exempt under section 108. In the assessment the AO has reduced 108 deduction on account of under mentioned amounts:
Particulars Amount(Rs.) Amount (Rs.) SCRAP SAALES 4,90,87,775/- OTHER INCOME:- Insurance claim 13,30,100/- Rent recovered-employees 5,95,518/- Damages recovered-Transporter 2000/- 19,23,618/- Total: 5,10,11,393/- Thus the AO has reduced the amount of business profits of the appellant in respect of the 108 unit by the amount of scrap sales of Rs. 4,90,87,775/- and other income by relying on the decision of Supreme Court in the case of LIBERTY INDIA V CIT (2009) 317 ITR 218 (SC) which was rendered in the context of deduction u/s 80IB where it was held that export profits are profits not derived from the Industrial undertaking and hence are not eligible for deduction. She has further relied on three ITAT decisions as referred in supra. It is pertinent to note these cases are not relevant to the issue under consideration. Two of these decisions are on claim of deduction on interest income which were not treated as part of business income as such question of deduction on the same does not arise and the third decision was in the context of profits on scrap sales held as not derived from the business of the undertaking this decision stand overruled by the Special decision of ITAT in Maral overseas, and Delhi High Court decision in the case of CIT V XLNC FASHIONS in order dated 01.09.2014 and finally the decision of Supreme Court in CIT v PUNJAB STAINLESS STEEL INDUSTRIES 364 ITR 144 (SC). In contrast to this the learned Counsel for the appellant has submitted that the decision of Liberty India was rendered in the context of Section 801B and similar other decisions of the apex court were rendered in the context of section 801A and 80HH, where definition of profits derived from the undertaking has not been defined in the respective sections. Having perused the provisions of the rival sections relied upon by the AO and the appellant, there is found to be a distinction in the provisions of section 80HHC, 10A and 108 vis a vis provisions of section 801A, BOIB and 80HH etc. In as much as in the former section/s, profits of the business has been defined to mean business profits of the undertaking. In other words, this means entire business profits of the undertaking has to be considered as eligible for deduction instead of only profits derived from the undertaking. While the Supreme Court decision as cited by AO, is fully applicable to a case covered u/s 801B, 80IA, and 80HH, the same does not apply to the & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 appellant's case. This proposition of law has been very lucidly explained by ITAT in its Special Bench decision in the case of MARAL OVERSEAS LTD. V ADDL. CIT (2012) 16 ITR (TRIB) 565 (INDORE) [SB] as cited by AR. It is also seen that while rendering its decision, the Spl. Bench ITAT has also duly considered the Supreme Court decision in Liberty India. I therefore agree with the appellants counsel that the concept of profits derived from the undertaking does not apply to section 10B deduction. The AO is directed to consider these scrap sales as business profit eligible for deduction u/s 10B.”
Before us, the Revenue has not brought any contrary material on record to controvert the findings of Ld.CIT(A) who had followed the decision of Special Bench in Maral Overseas (supra) which hold the field. In view of these facts, the order of Ld.CIT(A) is hereby upheld. Ground No.4 raised by the Revenue is dismissed.
Ground No.5 raised by the Revenue is general in nature, hence, dismissed.
In the result, the appeal of the Revenue is dismissed.
(AY 2014-15) [Assessee’s appeal]
Ground Nos. 1 to 3 are in relation to the assessee’s claim incentive received under the FPS scheme as capital receipt.
In this regard, while allowing additional ground of appeal No.2 of the assessee in AY 2011-12 in herein above, wherein by following the orders of the Hon’ble Rajasthan High Court in the case of PCIT vs Nitin Spinners Ltd. (supra) and of the Co-ordinate Bench of ITAT Delhi in the case of Narayan Industries vs ACIT (supra), we hold that the incentive received under FPS scheme is a capital receipt. Thus, by following the same & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 observations as made in of assessee’s appeal hereinabove, we hold that the incentive received during the year is capital receipt and not chargeable to tax under normal provisions of Income tax. Further, we direct the AO to exclude the same from the book profits for the purpose of charging MAT u/s 115JB of the Act. Accordingly, Ground No.1 to 3 of the assessee are allowed.
56. Ground No.4 is in relation to the allowability of provision of leave encashment.
While deciding the ground of appeal No. 1 in the appeal of the assessee for AY 2011-12 in we dismissed the claim of expenses towards provisions for leave encashment and, direct the AO to allow the expenses towards leave encashment on actual payment basis. With these directions, this ground of appeal is partly allowed.
In the result, the appeal of the assessee is partly allowed.
[Assessee’s appeal] & Year : 2015-16] 59. Ground No.1 is in respect of disallowance out of leave encashment. In this regard, directions are given while disposing the ground of appeal No.1 for assessee’s appeal in for AY 2011-12. Thus, following the same directions given hereinabove, the Ground of appeal No.1 of the assessee is partly allowed.
& 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 60. Ground of appeal No.2 of the assessee and grounds of appeal No. 1 to 3 taken by the Revenue are with regard to the disallowance u/s 14A of INR 16,92,40,123/-.
The facts in the present case are identical to the facts of the case of the assessee in AY 2011-12 except the difference in suo- motto disallowance made by the assessee at INR 6,19,633/- u/s 14A on account of administrative expenses in respect to the investments made. Further, no dividend income is received by the assessee during the year under appeal therefore, Ld.CIT(A) by following the judgement of Hon’ble Jurisdictional High Court in the case Cheminvest Ltd. vs CIT-IV (supra) has disallowed the disallowance made by AO. As the facts and observations in the year under appeal are similar to the facts as well in AY 2011-12 which fact is admitted by both the parties. Thus, by following the observations made in AY 2011-12 in while dismissing Ground No.3 of the Revenue, the order of ld. CIT(A) deleting the disallowance made u/s 14A is hereby confirmed. Accordingly, the Ground of appeal No.2 raised by the assessee is allowed and all the three grounds of the Revenue are dismissed.
During the course of hearing, the assessee in terms of application dated 16.06.2022 has taken the following additional grounds of appeal:- “
The applicant craves leave to raise the following by way of additional grounds of appeal:
1. That on the facts and circumstances of the case and in law, government grant received under the Focus Product Scheme (FPS) inadvertently offered to tax, being in the & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 nature of a capital receipt not liable to tax, should be directed to be excluded from the taxable income of the appellant under normal provisions of the Income Tax Act 1961 ("the Act").
2. That on the facts and circumstances of the case and in law, government grant received under the Status Holders Incentive Scrip (SHIS) inadvertently offered to tax, being in the nature of a capital receipt not liable to tax, should be directed to be excluded from the taxable income of the appellant under normal provisions of the Income Tax Act 1961 ("the Act").
That on the facts and circumstances of the case and in law, government grant received under the FPS and SHIS inadvertently offered to tax, being in the nature of a capital receipt not liable to tax, should be directed to be excluded while computing book profit under section 115JB of the Act."
The assessee in support of the additional grounds taken, filed written submissions which reads as under:-
The brief facts giving rise to the above additional grounds of appeal is as under: Additional ground of appeal No. 1, 2, and 3. In order to promote the exports, development of certain industries, employment generation, etc., the Government under the Foreign Trade Policy, provides subsidies and incentives to industries on the basis of different parameters set out in the respective schemes declared. The purpose of subsidy/incentive schemes varies from development of backward areas to development of a lagging industry or to provide support to existing industries in difficult times of their operations. Whenever a scheme is declared, the purpose of the subsidy/incentive is set out in clear terms in the scheme itself. The Government of India in its Foreign Trade Policy 2004 started Special Focus Initiatives with an object to continuously increase our percentage share of global trade and expanding employment opportunities especially in rural and semi-urban & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 areas. Under the mother policy of Special Focus Initiative certain special focus initiatives for market diversification, technological upgradation, support to status holders were identified for which specific schemes like Focus Market Scheme (FMS), Focus Product Scheme (FPS), Technological Upgradation Fund Scheme (TUFS), Status Holders Incentive Scrip (SHIS) were started. In Foreign Trade Policy 2006, under the Special Focus Initiatives, Focus Product Scheme (FPS) was introduced with an objective to incentivise export of such products which have high employment intensity in rural and semi-urban areas, so as to offset the inherent infrastructure inefficiencies and other associated costs involved in marketing of these products. The scheme was launched in 2006 and subsequently, several amendments were made to the scheme by adding more products eligible for export incentives under the scheme and giving different rate of duty credit scrip concessions. As per the FPS policy, exports of notified products to all countries shall be entitled for duty credit scrip equivalent to 2- 5% of the value of exports for each licensing year. Duty credit scrip is a license to import commodities in a duty free manner for the scrip value (2-5% of exports). The products exported by the applicant are eligible for duty credit of 2% of the FOB value of the exports. The applicant, during the year under consideration, as per the regulations of the abovementioned (FPS) scheme recognised a government grant of Rs. 55,31,37,891/-which was duly credited to the profit and loss account at Note 20(c) of the financial statements under the head "Export/Other Government Incentives" and inadvertently offered to tax as revenue receipt during the assessment year 2015-16. Similarly, with an objective to promote investment in upgradation of technology of some specified sectors as listed in Foreign Trade Policy, Status Holders shall be entitled to incentive scrip @1% of FOB value of exports made during the year, of these specified sectors, in the form of duty credit. As the objectives of subsidy under SHIS are set out in the Foreign Trade Policy and are same as of TUFS one can easily infer that the same would be a capital receipt and is not taxable.
& 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 The applicant during the year under consideration, as per regulations of Status Holders Incentive Scrip (SHIS), which is similar to Technological Upgradation Fund Scheme (TUFS), recognised a government grant of Rs. 24,44,01,073/- which was duly credited to the profit and loss account at Note 20(c) of the financial statements under the head "Export/Other Government Incentives" and inadvertently offered to tax as revenue receipt during the assessment year 2015-16. The taxation of incentive/ subsidy by whatever name called, is determined by the purpose for which the subsidy is granted and not the form/mode/manner in which the subsidy is received/disbursed. The law in this regard is fairly well settled and reference may be made to the following decisions: Sahney Steel and Press Works vs. CIT: 228 ITR 253 (SC) CIT V. Ponni Sugar and Chemicals Limited: 306 ITR 392 (SC) CIT vs. Chaphalkar Brothers: 400 ITR 279 (SC) PCIT vs. Nitin Spinners Ltd [2021] 130 taxmann.com 402 (SC) CIT vs. Shyam Lal Bansal [2011] 11 taxmann.com 369 (Punjab & Haryana) The purpose for which the incentives have been given, it is submitted, can be gauged from the objects and reasons behind introduction of the Policy. If the purpose of the subsidy was to enable the assessee to run the business more profitably, then, the receipt is on revenue account. If the object of the assistance was to enable the assessee to set up a new unit or to expand the existing units, then the receipt was on the capital account. In the present case, the subsidy was granted primarily for the "purpose" of increasing India's percentage share of global trade and to create employment opportunities in rural and semi-urban areas and to ensure optimum utilization of human resources and hence constituted capital receipt not liable to tax under normal provisions of the Act as well as while computing book profit in terms of section 115JB of the Act. The additional ground of appeal is being raised on the applicant being recently advised of the correct legal position and the omission to raise the aforesaid additional ground of appeal earlier was neither wilful nor deliberate. Further, the aforesaid additional ground raises purely a legal issue regarding the Page | 30 & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 character of the subsidy, which has to be decided on the basis of the purpose set out in the Scheme, which is a government/gazette/ notified public document, available in public domain. The adjudication of the said ground, therefore, do not require any investigation into fresh facts; relevant being already on record. For the aforesaid reasons, it is respectfully prayed that the additional ground may kindly be admitted and adjudicated on merits. Prayer: In view of the above, the additional grounds of appeal calls for being admitted and adjudicated on merits by virtue of the discretion vested in your Honour under Rule 11 of the Income- tax (Appellate Tribunal) Rules, 1963 and the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT: 229 ITR 383 as also the decision in the case of Jute Corporation of India v. CIT: 187 ITR 688. The applicant trusts that the request shall be acceded to. An opportunity of being heard is prayed for.”
In all the additional grounds of appeal, assessee claimed that incentive received under FPS and SHIS scheme are capital in nature and therefore, the same deserves to be reduced from the total income and also from the book profits computed u/s 115JB of the Act.
In the present appeal, the issues raised through additional grounds of appeal No 1 and 3 are identical to the issues raised through additional ground of Appeal No. 2 in for AY 2011-12, where by following the judgement of Hon’ble Supreme Court in the case of NTPC ltd (supra) and in the case of Goetz (India) Ltd. (supra), we admit the additional grounds of appeal and further admitted additional claims made through additional & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 grounds of appeal. Thus, by following the observation as made in for AY 2011-12, the additional grounds of appeal taken by assessee in the present appeal for AY 2015-16 are admitted for adjudication.
We regard the incentive received under FPS scheme, while allowing the additional ground of appeal No.2 of the assessee in AY 2011-12 in herein above, wherein by following the orders of the Hon’ble Rajasthan High Court in the case of PCIT vs Nitin Spinners Ltd. (supra) and of the Co-ordinate Bench of ITAT Delhi in the case of Narayan Industries vs ACIT (supra), we hold that the incentive received under FPS scheme is a capital receipt. Thus, by following the same observations as made in of assessee’s appeal hereinabove, we hold that the incentive received during the year under FPS is capital receipt and not chargeable to tax under normal provisions of Income tax. Further, we direct the AO to exclude the same from the book profits for the purpose of charging MAT u/s 115JB of the Act.
In additional ground of appeal No. 2, in this year, the assessee has also made further claim that the incentive received under Status Holders Incentive Scrip (“SHIS”) which is offered for tax in Profit & Loss Account as revenue receipt is also capital receipt.
In this regard, we find that the nature and object of this scheme is akin to FPS Scheme where the sum received has already been held as capital receipt and not chargeable to tax under Income Tax Act as revenue receipt. In this regard, reliance is placed on the & 1000/Del/2016, 4693 & 4760/Del/2019 & 504/Del/2022 judgement of the Hon’ble Rajasthan High Court in the case of PCIT vs Nitin Spinners Ltd. (supra) and Narayan Industries (supra) whereas it is held that the incentive received under FPS is capital receipt.
From the perusal of the scheme promoted by the Government in terms of Foreign Trade Policy, 2009 to 2014, the SHIS incentive was given with the objective to promote investments in upgradation of technology of some specified sectors set as leather, textile and jute, handicrafts and engineering sectors, plastics and basic chemicals. Thus, by respectfully following the judgment of Hon’ble Supreme Court in the case of CIT vs Ponni Sugar & Chemical Ltd. 306 ITR 392 (SC) and the judgment of Hon’ble Jammu & Kashmir High Court in the case of Shree Balalji Alloys vs CIT reported in 239 CTR 70 (J&K) and the judgement of Hon’ble Rajasthan High Court in the case of PCIT vs Nitin Spinners Ltd. (supra) and Co-ordinate Bench of the Tribunal in case of Narayan Industries (supra), we hold that the incentives received by the assessee towards SHIS scheme is capital receipts and not chargeable under normal provisions of the Act. Accordingly, we direct that the same to be excluded from the revenue receipt as well as from the book profits for the purpose of charging of MAT u/s 115JB of the Act. Thus, additional grounds of appeal No. 1 to 3 raised by the assessee are allowed.
In the final result, appeals of the assessee in [AY 2011-12], [AY 2015-16] & ITA No.504/Del/2022 [AY 2014-15] are partly allowed and appeals of the Revenue in ITA No.1000/Del/2016 [AY 2011- 12] & 2015-16] are dismissed.
Order pronounced in the open Court on 04.06.2025.