JOINT CIT (OSD) CENT CIR. 1(4), MUMBAI vs. GRASIM INDUSTRIES LTD., MUMBAI

PER M. BALAGANESH (A.M): These appeals in 2154/Mum/2016, 2165/Mum/2016, 2157/Mum/2016, & 2156/Mum/2016 for A.Yrs.1996-97- 2000-01 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-13, Mumbai in appeal No.CIT(A)-13/ACIT-7(1)(1)/258/2015-16, CIT(A)-13/ACIT-7(1)(1)/329/2015-16, CIT(A)-13/ACIT-7(1)(1)/233/2015-16, CIT(A)-13/ACIT-7(1)(1)/328/2015-16 & CIT(A)-13/ACIT-7(1)(1)/933/2015-16 respectively dated 25/01/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 254 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 29/10/2013, 12/03/2014, 23/10/2013,14/03/2014 & 29/10/2013 respectively by the ld. Dy. Commissioner of Income Tax, Circle-6(3), Mumbai (hereinafter referred to as ld. AO).

2. The only effective to be decided in all these appeals is as to whether the sales tax/entry tax exemption i.e subsidy, incentive, etc, by whatever name called, received by the assessee could be construed as capital receipt not chargeable to tax in the facts and circumstances of the case.

M/s. Grasim Industries Ltd., 3. The brief facts of this issue are that the assessee has received sales tax/entry tax/purchase tax/VAT, etc exemptions/incentives under respective schemes from the State Governments of Maharashtra, Madhya Pradesh, Rajasthan and Haryana as the Assessee had set up units in notified areas of those State. During the Asst Year 1996-97, the assessee had availed sales tax exemption incentive of Rs 17,50,22,940/- for setting up new industry in backward areas under the scheme of various state governments. The assessee filed its original return and offered the subsidy as trading receipt. The assessments were completed treating the subsidy as a revenue receipt , but the ld. AO resorted to make certain additions / disallowances on certain other issues. This was agitated by the assessee upto Tribunal. Subsequently, the assessee filed an additional ground before the Tribunal claiming the sales tax exemption as a capital receipt, relying on the decision of Special Bench of Mumbai Tribunal in the case of DCIT v. Reliance Industries Ltd reported in 88 ITD 273. The Tribunal decided the appeals filed by the assessee admitting the additional ground filed by the assessee and directed the ld. AO as under:

―31.1 This ground has also been raised for the first time before us by the assessee; therefore, it requires proper examination and verification of the nature of the benefit and scheme of government under which the benefit has been availed by the assessee. Accordingly, we remit this issue to the record of the Assessing Officer to consider and decide the same as per law and after giving reasonable opportunity of being heard to the assessee.‖ 3.1. It is pertinent to note that against this order of the Tribunal in the first round of proceedings, no appeals were preferred by the revenue before the Hon‟ble High Court. Accordingly, the said finding of Tribunal and directions have become final.

M/s. Grasim Industries Ltd., 3.2. The scheme-wise state-wise details of the various sales tax/entry tax exemption received by the assessee for various assessment years are tabulated below: Particulars Year-wise amount of Incentives (Rs. in Lakhs) Sr No. AY AY AY 1998- AY AY 2000- 1996-97 1997-98 99 1999-00 01 1 Maharashtra State - Package Scheme of Incentive, 1988 dated 01.10.1988 1.1 Vikram Ispat Unit 994.23 1,908.86 1,348.58 1,265.73 2,118.17 2 Haryana State - Sales Tax Exemption Scheme (Haryana General Sales Tax Rules 1975) 2.1 Elegant Spinners 84.61 84.93 192.63 - - 3 Rajasthan State - Sales Tax New Incentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989) 3.1 Aditya Cement - Sales Tax 41.86 169.39 898.15 842.08 698.54 4 Madhya Pradesh State 4A Sales Tax Incentives 4.1 1991 Scheme for units with Capital Investment in fixed assets of Rs.100 Crores or more 4.1.1 Grasim Cement 683.27 1,045.09 1,187.93 1,022.03 1,346.04 4.2 New Industries Notification No.A-3-11-86 (74)-ST-V dated 16.10.1986 under Madhya Pradesh General Sales Tax Act,

M/s. Grasim Industries Ltd., 1958 4.2.1 Poly Aluminium Chloride 15.66 - - - - 4.3 Sales Tax Exemption Scheme (M.P. Vanijyikar Adhiniyam, 1994) 4.3.1 Vikram Woollens 5.08 37.28 44.06 57.18 61.89 4B Entry Tax Incentives 4.4 Entry Tax Notification No.422-6596 dated 09.02.1977 under Madhya Pradesh Sthaniya Kshetra Me Mal ke Pravesh Par Kar Adhiniyam, 1976 4.4.1 Poly Aluminium Chloride 1.21 - - - - 4.4.2 Chloro Sulphuric Acid Division 1.60 1.07 0.65 - - 4.5 New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 under Madhya Pradesh Sthaniya Khstra Me Mal ke Pravesh Pare Kar Adhiniya, 1976 4.5.1 Caustic Soda Memrance Cell 7.32 23.43 41.99 42.42 4.54 Total 1,750.23 3,185.12 3,605.97 3,314.36 4,421.81 3.3. The said exemption schemes are implemented by the respective sales tax authorities. For example, State Industrial and Investment corporation of Maharashtra (“SICOM”) is the implementing agency in Maharashtra. Exemption is granted to the assessee by way of eligibility certificate where various conditions are stipulated, including requirement of maintaining proper accounts, utilization etc. Generally, the purpose behind the grant of such schemes is for development of backward areas as well as industrial development and generating employment. For example, the preamble of the M/s. Grasim Industries Ltd., Package Scheme of Incentive (“PSI”), 1988 dated 01.10.1988 by State of Maharashtra is as under:-

―In order to achieve dispersal of industries outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New Units / Expansion set- up in developing region of the State since 1964 under a Scheme popularly known as the Package Scheme of Incentive.‖ 3.4. Further, the said Scheme itself defines what is a “notional” sales tax liability (“NSTL”). This is enclosed in Page 375 of the Paper Book 2 filed before us. It is pertinent to note that the Notional Sales Tax Liability (NSTL) is quantified by the Sales Tax Officer. Evidences in this regard are enclosed in Page 553 of the Paper Book 2 filed before us.

3.5. The assessee is eligible for sales tax exemption upto a fixed percentage of capital investment which could be availed over a period of several years. For example - In the Maharashtra Scheme, the assessee falls under the category of „Pioneer unit‟, it is eligible for sales tax exemption upto 95% of fixed capital investment and can avail the same for a period of 10 years. The total amount of subsidy/incentive is thus capped at a particular % of total capital invested and thus over the specified period, the assessee subject to fulfilment of respective conditions under relevant schemes, gets this benefit. The subsidy figure is either determined based on the sales tax returns filed by the assessee or based on the sales tax/entry tax / purchase tax assessment orders passed in respect of various schemes of various state governments, as the case may be. The total subsidy received for each year is summarised in page 1167 of the Paper Book 4 filed before us. As and when the final sales tax liability is determined in the sales tax assessment order, the same amount is treated as notional sales tax subsidy and granted by the competent authority to the assessee. However, in all these cases, the total subsidy

M/s. Grasim Industries Ltd., figure have been capped / outer limit is prescribed in the subsidy / incentive scheme itself.

3.6. Proceedings before the ld. AO in the second round of proceedings: During the course of proceedings u/s 143(3) r.w.s. 254 of the Act, the ld. AO had called for documentary evidences to substantiate the claim of sales tax/entry tax exemption. The evidence in this regard is enclosed in Page 786 of the Paper Book 3 filed for the Asst Year 1996-97. The assessee provided scheme-wise salient features along with its objects and benefit. The assessee filed all the relevant documents of each scheme before the ld. AO which are tabulated in the index pages 1-6 of Paper Book running from Page Nos. 368 to 748. In particular, the assessee filed the following documents for each of the subsidy / incentive scheme:- a. Sales tax/entry tax scheme or State Government notification; b. Eligibility certificate, wherever applicable; c. Entitlement certificate, wherever applicable; d. Sales tax assessment order/ Sales Tax Return/Entry tax returns/etc; The assessee further mapped all the documents with the scheme-wise amount of exemption claimed. The evidence in this regard is enclosed in Page 1167 of the Paper Book 4 filed. The index of the factual submissions made before the ld. AO has also been filed by the assessee vide Paper Book 1, the relevant page numbers of which are as follows:

A.Y. Scheme-wise documents filed before the AO (Paper Book 1, Pg. No.)

M/s. Grasim Industries Ltd., 1996-97 31-33 1997-98 37-40 1998-99 47-49 1999-00 51-54 2000-01 55-58 3.6.1. The ld. AO passed order u/s 143(3) r.w.s. 254 of the Act after considering the details in the form of various subsidy schemes of the various state governments and submissions filed by the assessee. The ld. AO rejected the claim of the assessee by treating the receipt of subsidy as a revenue receipt, effectively on the following grounds:- a) Hon‟ble Bombay High Court order in case of Reliance Industries Ltd. has been set aside by the Hon‟ble Apex Court. Hence the issue has not been settled by the Hon‟ble Apex court till date. b) Sales tax incentive is determined based on the sales tax assessment order or the sales tax returns, as the case may be, which happens after the commencement of business. c) Alternatively, the incentives/ subsidies are to be reduced from the cost of assets as per Explanation 10 to section 43(1) of the Act. d) Claim of exemption from tax was not made in the return of income and cannot be allowed following the decision of Hon‟ble Supreme Court in the case of Goetze India Ltd reported in 284 ITR 323 (SC).

3.7. Proceedings before the ld. CIT(A) in the second round of proceedings: The ld. CIT(A) also again verified all the documentary evidences filed by the assessee regarding various incentive /subsidy schemes as detailed supra. The ld. CIT(A) at Para 3.3 of his order, negated the observation of the ld. AO that M/s. Grasim Industries Ltd., claim cannot be made raised following the decision of Hon‟ble Apex Court in the case of Goetze India Ltd on the ground that the proceedings are in course of second round, post tribunal admitting the additional ground and thus, reliance placed by the ld. AO on Goetze India Ltd in these proceedings is misplaced. The ld. CIT(A) after acknowledging that the assessee has filed all the incentive schemes including notifications of the state governments, relied upon the decision of Hon‟ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd reported in 306 ITR 392 (SC) as well as the decision of Special Bench of Mumbai Tribunal in the case of Reliance Industries Ltd reported in 88 ITD 273 held that sales tax incentive/subsidy is a capital receipt. Aggrieved by this, the revenue is in appeals before us.

4. The ld. Special Counsel for the Revenue drew our attention to the eight additional grounds raised by the Revenue for the above mentioned assessment years. We find that all those additional grounds are merely argumentative in nature and are supportive of the main grounds raised already by the Revenue. Hence, the additional grounds and original grounds raised by the Revenue are taken up together for the purpose of adjudication of the issue in dispute before us.

4.1. The ld. Special Counsel for the Revenue argued that assessee had filed its original return for the above years by including sales tax subsidy as revenue receipt. The assessments were completed after making certain additions / disallowances. Those disputed issues were carried in appeal up to the level of the Tribunal by the assessee. When the appeal was pending before this Tribunal for the first time, almost after a gap of 10 years, the assessee chose to file an additional ground before this Tribunal to claim that M/s. Grasim Industries Ltd., subsidy / incentive / grants received under various schemes / notifications of various state Governments are capital receipts not chargeable to tax.

4.2. The ld. Special Counsel for the Revenue submitted that this Tribunal erred in admitting the additional grounds raised by the assessee in the first round of proceedings, as the decision of Special Bench of this Tribunal in the case of Reliance Industries Ltd., has been reversed by the Hon‟ble Supreme Court. The ld. Special Counsel for the Revenue also criticized the Special Bench decision of this Tribunal in the case of Reliance Industries ltd., to be fallacious, wrong and perverse. He submitted that this Tribunal in the first round of proceedings had admitted the additional ground raised by the assessee on the issue of taxability of subsidy as capital receipt and had remitted the same to the file of the ld. AO to decide the issue in the light of Special Bench decision of this Tribunal in the case of Reliance Industries Ltd., The ld. Special Counsel for the Revenue also submitted that this Tribunal in the first round of proceedings had directed the ld. AO to make thorough examination of the entire subsidy schemes of various State Governments. The ld. Special Counsel for the Revenue took us to the Special Bench decision of Reliance Industries Ltd., reported in 88. ITD 273 and stated that the said decision dealt only with the Maharashtra Subsidy Scheme, whereas in the case of assessee before us, the subsidy schemes notified by four different states are involved including Maharashtra Subsidy Scheme. Hence, he stated that the ld. CIT(A) grossly erred in merely following the Special Bench decision of Tribunal in the case of Reliance Industries Ltd., which dealt only with Maharashtra Subsidy Scheme, while granting relief to the assessee. He also stated that the ld. CIT(A) had merely relied on the statements made by the assessee that all the incentive schemes were submitted before the ld. AO. In the opinion of the ld. Special Counsel for the Revenue, the lower M/s. Grasim Industries Ltd., authorities had not examined the subsidy scheme at all as directed by this Tribunal in the first round of proceedings. He relied on the order of the ld. CIT(A) wherein no detailed discussions were made with regard to each of the subsidy schemes in the appellate order. The ld. Special Counsel for the Revenue stated that what is received by the assessee is whether the subsidy or incentive itself was not proved by the assessee in the instant case. He drew our attention to the submissions made before the lower authorities that assessee was entitled for notional sales tax subsidy and accordingly, he concluded that notional sales tax subsidy would not fall within the ambit of actual subsidy and hence, the same would have to be treated as a revenue receipt. He vehemently argued that since this subsidy was granted to the assessee after the commencement of business of the assessee, the same would constitute revenue receipt as it was meant for the purpose of supporting working capital requirements of the assessee. The ld. Special Counsel for the Revenue argued that there was some factual discrepancies between the figures of notional subsidy mentioned in the additional grounds furnished by the assessee before this Tribunal in the first round of proceedings with the actual amount of subsidies received by the assessee. The same are tabulated hereunder:-

A.Y. Amount (Rs.) Amount (Rs.) (As per asst. (As per addl. Ground order) of appeal) 1996-97 17,50,22,940/- 18 Cr. 1997-98 31,85,11,619/- 30 Cr. 1998-99 36,05,96,547/- 34 Cr. 1999-00 33,14,35,985/- 33 Cr.

M/s. Grasim Industries Ltd., 2000-01 44,21,80,515/- 42 Cr. Total 162,77,47,606/- 157 Cr.

4.3. The ld. Special Counsel for the Revenue vehemently argued that assessee never reconciled these factual discrepancies with supporting documents. He also tried to drive home the point that subsidy figure has to be taken from the final sales tax assessment order as per the various subsidiaries schemes of various State Governments. He stated that the sales tax assessment order would be received by the assessee after the due date of filing the return of the income by the assessee. Hence, there cannot be a proper quantification of the subsidy by the assessee at the time of filing of return of income. This itself clearly goes to prove that the entire concept of notional sales tax subsidy as enumerated in the schemes of various State Governments becomes unworkable. He also vehemently argued that the Income Tax department need not wait for the final quantification of the subsidies in the sales tax assessment orders. Moreover, the sales tax assessment orders would not be final and would be subjected to regular appeal and thereafter, the Income Tax Officer had to correspondingly change the subsidy figures in the Income Tax assessment of the assessee company, which makes the entire gamut of quantification of subsidy unworkable. This itself goes to prove that assessee is not entitled for treating the said subsidy as capital in nature. Moreover, the basis of determination of sales tax subsidy is depending on sales tax assessment order. Hence, the ld. AO has to wait till the sales tax assessment order is finally passed in the hands of the assessee. This could be possible if the return of the assessee is selected for scrutiny. What if the income tax return is not at all selected for scrutiny? In such cases how the final quantification of sales tax subsidy could be determined by the Income Tax Officer? This makes the entire scheme of subsidy completely unworkable.

M/s. Grasim Industries Ltd., Hence, he vehemently denied the basic concept of notional subsidy which has been ultimately received by the assessee in the instant case. He also relied on the decision of the Hon‟ble Supreme Court in the case of B.C. Srinivasa Setty reported in 128 ITR 294 wherein it was held that when the computation provision fails, the charging section also correspondingly fails.

4.4. The ld. Special Counsel for the Revenue vehemently submitted that the Special Bench decision of this Tribunal in the case of Reliance Industries Ltd., reported in 88 ITD 273 was ultimately reversed by the Hon‟ble Supreme Court vide its order dated 09/09/2011. He stated that the order in the first round of appellate proceedings was passed by this Tribunal on 16/05/2012 on which date the order of the Hon‟ble Supreme Court was in force. Hence, the direction of this Tribunal in admitting the additional ground of the assessee and remitting the matter back to the ld. AO to decide the taxability of subsidy in the light of the Special Bench decision in the case of Reliance Industries Ltd., and ignoring the Hon‟ble Supreme Court decision thereon, makes the order of this Tribunal per incuriam. Accordingly, he prayed for restoration of the original assessment framed in the hands of the assessee for all these years. The ld. Special Counsel for the Revenue also submitted that Reliance Industries Ltd., deals with Maharashtra Subsidy Scheme of 1983 whereas, the assessee case deals with different schemes of different years of different states. He argued that the decision of the Hon‟ble Supreme Court in the case of U.P. Rashtriya Chinni vs. State of UP and others dated 02/07/1995 reported in 1995 SCC(4) 738 was not cited anywhere by this Tribunal and accordingly, the decision of Special Bench in the case of Reliance Industries Ltd., becomes non-est and loses its binding precedent. He accordingly argued that the entire gamut of taxability of subsidy should be viewed completely ignoring the decision of Special Bench in the case of Reliance Industries referred to supra.

M/s. Grasim Industries Ltd., 4.5. He also pointed out that assessee had not maintained separate records for sales tax account and the subsidy to be received thereon. Accordingly, he argued that assessee had not maintained even the primary records that are required to prove that subsidy has been received by it for a specific purpose and quantification has been made in a particular manner as contemplated in the scheme. He also placed reliance on the decision of this Tribunal in the case of Bajaj Auto Ltd., reported in 90 ITD 153 which held that the liability for sales tax was not reflected in the accounts and no such claim was made by the assessee in the return of income, and in the return of income there was no mention regarding notional sales tax liability, the assessee would not be entitled for treating the said sales tax subsidy as a revenue receipt. He also relied on the same judgement for driving home the point that the eligibility certificate for granting the subsidy was issued by the implementing agency after the commencement of commercial production and accordingly, it cannot be said that the subsidy so received would be in the capital field. He vehemently relied on the decision of the Hon‟ble Supreme Court in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 wherein it was held that subsidy received after the commencement of business would be revenue receipt chargeable to tax.

4.6. The ld. Special Counsel for the Revenue submitted that the cut-off date should be reckoned as the date of commencement of business and any subsidy or incentive received after that date shall be considered as a revenue receipt in the light of the decision of the Hon‟ble Supreme Court in the case of Sahney Steel referred to supra. He submitted that there is no concept of notional subsidy that could be acceptable and if it is so, it is only revenue receipt. The ld. Special Counsel for the Revenue gave a brief description of M/s. Grasim Industries Ltd., each of the scheme in its written submissions enclosed in pages 52-56 thereon and finally drew our attention to the summary of the schemes furnished by the assessee and the common features enumerated thereon as under:-

(a) The objects are general like dispersal of industries from Bombay- Thane- Pune belt to outside, boost up of new industrial development in the state, accelerating the pace of development. They are common objectives of any incentive system. It does not follow that all incentives would be capital in nature. (b) The incentives are given after the commencement of business. The presumption is that the incentive is of revenue nature [Vide the decision of the Hon‟ble Supreme Court in the case of Sahney Steel and Press Works Ltd. v. CIT, 1997,228 ITR 253( SC) ]. It is for the assessee to establish with documents how it is capital receipt. [Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict construction of exemption provisions against the assessee].

(c) The incentive continues for years – here 10 years, 5 years, 9 years and 11 years. As discussed in paragraph 20 above, the incentive is continuously received for years and the assessee received incremental indirect benefits, not any direct lump sum receipt. Then the strong presumption according to the normal conduct of business, is that the incentive supplemented the profit of the business and was of revenue nature. The most important point is that assessee in its original return of income treated the transaction, and rightly so, as revenue in character and paid the taxes. But, as narrated earlier, after more than a decade the assessee has raked up the issue of capital receipt. If the assessee claims it to be capital receipt, the burden is for the assessee to establish with evidence that it is a capital receipt.[ Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict interpretation of exemption provisions against the assessee].

M/s. Grasim Industries Ltd., 4.7. The ld. Special Counsel for the Revenue relied on para 23 of his written submissions dated 03/09/2020 from pages 57-61 wherein he had sought comments from the ld. AO regarding each of the schemes. For the sake of convenience the comments given by the ld. AO are reproduced hereunder:-

“1)Vikram Ispat, Division of Grasim Industries Limited - Sales Tax Exemption In case of this Unit, the Assessee has shown and claimed Sales Tax subsidy of Rs.9,94,22,648/- by way of Purchase Tax, Sales Tax, Central Sales Tax and Turnover Tax. The said scheme availed by the Assessee is covered under the Package Scheme of Incentive 1988 dated 01.10.1988 by the State of Maharashtra. The noteworthy and salient features of this Scheme outlined in the Notification is summarised as under - Page Remarks No. 3 As per Preamble, the New Scheme is launched to intensify and accelerate the process of dispersal of industries outside the Bombay-Thane-Pune Belt and to attract them to the underdeveloped and developing areas of the State. From the above summarised features, it can be seen that the primary and cardinal motive of the Package Scheme of Incentive 1988, is to disperse the industrial units located in Mumbai-Thane-Pune belt. The sole purpose of this Notification that can be deduced from the Notification is de-congestion of this belt being Mumbai-Thane-Pune belt by dispersing such industries located in this area to other areascategorised as B, C and D of the under developed and developing areas. In this case, the converse inference cannot be true, as the Notification does not speak of Industrial Units to be re-located from any other areas of Maharashtra to the backward areas. To put it simply, the industrial units put up in the backward area would not enjoy the same incentives, if they are relocated to backward area, from those areas not covered by the Mumbai-Thane-Pune belt. For the purpose of grant of such subsidies, the methodology of working was based on the value of investments made in these backward/notified areas, which may also include the value of plant & machinery dismantled and relocated to these notified areas from the Mumbai-Thane-Pune belt. The Scheme is silent about relocation of M/s. Grasim Industries Ltd., Industrial Units from other areas than the specified Mumbai-Thane- Pune belt. Therefore, it cannot be said that the Package Scheme of Incentive 1988, of State Government Maharashtra was meant at large for all the units setup in the notified areas, and hence the purpose of Scheme was not for the setting up of new units, but was primarily for the purpose of decongestion and dispersal of the units located in the Mumbai-Thane- Pune belt/corridor. The subsidy therefore cannot be said to linked to the capital investments for setting of new units or relocation of units but was for the sufferance or disadvantage on setting up or relocating the units from Mumbai- Thane-Pune belt to the backward/ notified areas. Hence, the facts of this case and the intention of the Notification when subjected to the purpose test envisaged in the Hon‘ble Apex Court‘s decision in the case of Sahney Steel and Press Ltd. vs. CIT [(1997) 142 CTR (SC) 261] and CIT v/s Ponni Sugars & Chemicals Limited [(2003) 260 ITR 0605], and the derived benefits fails to qualify as Capital Receipts. Therefore, the receipts by way of subsidies of Purchase Tax, Sales Tax, Central Sales Tax and Turnover Tax amounting to Rs.9,94,22,648/- by the State Government of Maharashtra under the Package Scheme of Incentive 1988 dated 01.10.1988, are revenue in character and not ‗Capital‘ as claimed by the Assessee and accepted by the Ld.CIT(A), Mumbai. (2) Chloro Sulphuric Acid Division and Caustic Soda Membrance Cell Division of Grasim Industries Limited - Entry Tax exemption A) As per Assessee‘s submission for Assessment Year 1996-97, vide page nos.87, the Designated Authority has issued Exemption letter dated 24.9.1996 under the Entry Tax Notification No.422-6596 dated 09.02.1977 of the Madhya Pradesh SthaniyaKshetra Me Mal K Pravesh Par Kar Adhiniyam, 1976. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investmentonly for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. B) As per Assessee‘s submission for Assessment Year 1996-97, vide page nos.101, the Designated Authority has issued Certificate of Eligibility M/s. Grasim Industries Ltd., for Exemption of Entry Tax dated 23.02.1998 under the New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 Madhya Pradesh SthaniyaKshetra Me Mal K Pravesh Par Kar Adhiniyam, 1976. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investmentonly for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (3) Aditya Cement, Unit of Grasim Industries Limited, Sales Tax Exemption As per the Assessee‘s submission for Assessment Year 1996-97, vide page No.119-120, the Assessee has been issued Eligibility Certificate dated 31.10.1995 for exemption of sales tax of cement clinkers of new unit, citing the eligible fixed capital investment (8a), under the Sales Tax New Incentive Scheme for Industries 1989, Rajasthan [Sr.No.764 : F- 4(35)FD Gr.IV/87-39 dated 06.07.1989]. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (4) Vikram Woollens, Unit of Grasim Industries Limited, Sales Tax Exemption As per Assessee‘s submission for Assessment Year 1996-97, vide page nos.140, the Designated Authority has issued Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (M.P. VinijyikarAdhiniyam, 1994). As per the Assessee‘s submission, the scheme of sales tax exemption is applicable to new industrial undertakings. However, neither the Scheme nor the Eligibility Certificate vide page No.140, clearly establishes any nexus of the exemption granted with the capital investments, The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (5) Grasim Cement, Unit of Grasim Industries Limited, Sales Tax Exemption On perusal of the Notification No.A-3-27-89-ST-V-(15) dated 15.02.1991, issued by the State Government of Madhya Pradesh, it is observed that the Sales Incentive Scheme is for exempting New Units with Capital Investments of Rs.100 crores or more. As per Assessee‘s M/s. Grasim Industries Ltd., submission, vide page nos.163-168, the Designated Authority has issued Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (Madhya Pradesh Industrial Policy & Action Plan, 1994) citing investment of Rs.280,33,11,056/. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (6) Elegant Spinners, Unit of Grasim Industries Limited, Sales Tax Exemption (AY 1997-98) As per Assessee‘s submission for Assessment Year 1996-97, vide page nos.193-194, the Designated Authority has issued Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (Haryana General Sales Tax Rules, 1975). As per the Assessee‘s submission for Assessment Year 1996-97, on perusal of the Scheme (Page nos.178-179) of the Assessee, it is seen that the exemption is provided in respect of newly established industrial undertakings or expansion of existing industrial undertakings subject to fulfilment of capital investment and increase in annual production criteria mentioned therein. However, neither the scheme, nor the Eligibility Certificate provide the methodology for quantification of sales tax exemption vis-à-vis capital investment. Hence no exemption available, not being capital subsidy.

4.8. The ld. Special Counsel for the Revenue submitted that the reliance placed by the assessee on the decision of the Hon‟ble Madhya Pradesh High Court in the case of CIT vs. Dusad Industries Ltd., reported in 162 ITR 734 (MP) was overruled by the Hon‟ble Supreme Court in the case of Sahney Steel and Press Works Ltd supra. Hence, Madhya Pradesh Scheme pursuant to which assessee has received subsidy has to be construed as a revenue receipt.

4.9. The ld. Special Counsel for the Revenue stated that the decision relied by the ld. CIT(A) on Hon‟ble Supreme Court in the case of Ponni Sugars and M/s. Grasim Industries Ltd., Chemicals Ltd., reported in 306 ITR 392 (SC) was not at all applicable in view of the fact that the questions raised in the case of Ponni Sugars and Chemicals Ltd., had two limbs:-

“Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the incentive given by the Government in the form of higher free sale quota of sugar towards excise duty and purchase tax should be treated as capital receipt and hence no tax was excisable thereon.‖ 4.10. The ld. Special Counsel for the Revenue submitted that the incentive on purchase tax was held as „revenue receipt‟ by the Hon‟ble Madras High Court in the same case of Ponni sugars reported in 260 ITR 605 which was accepted by the assessee and that limb of the issue was never challenged before the Hon‟ble Supreme Court by the assessee. He submitted that in the case of Ponni Sugars and Chemicals Ltd., there was a categorical finding by the Hon‟ble Madras High Court in page 611 of the judgement that assessee had produced ample materials to show that monies accrued to it by way of incentives are infact properly applied for the purpose of discharging the term loans obtained by it in accordance with terms of the loan agreement. Whereas in the instant case before us, the assessee had not submitted any material regarding the subsidy scheme of various State Governments and had not established the purpose of receipt of such subsidy and the manner in which the same had been quantified and utilised. Accordingly, he argued that the decision of the Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., cannot advance the case of the assessee. The ld. Special Counsel for the Revenue relied on various other decisions of the Hon‟ble High Courts in support of the aforesaid contentions.

M/s. Grasim Industries Ltd., 4.11. The ld. Special Counsel for the Revenue on yet another occasion devoted maximum time in criticising the Special Bench decision of Reliance Industries Ltd., reported in 88 ITD 273 by observing as under:- a. Special Bench decision is perverse. b. Special Bench did not follow the mandate given to them by the Hon‟ble President of Tribunal. c. Special Bench did not go into facts as to what is notional subsidy, utilisation of subsidy etc., d. Special Bench decision has been very poorly drafted. e. Though Bajaj Auto Ltd., decision of Mumbai Tribunal was distinguished by the Special Bench, the Special Bench did not overrule Bajaj Auto Ltd., f. Special Bench heavily relied on the Sales tax assessment for the purpose of quantification of notional subsidy and reliance placed on the said sales tax assessment is irrelevant. g. Directions of Special Bench would be unimplementable. h. Special Bench twisted the interpretation of the decisions of the Hon‟ble Supreme Court in the case of Sahney Steel and Press Works Ltd and Ponni Sugars and Chemicals ltd., referred to supra. i. Special Bench decision does not lay down any ratio decidendi. j. Special Bench decision has been set aside by the Hon‟ble Supreme Court on the grounds of perversity. k. Special Bench decision has no precedence value.

M/s. Grasim Industries Ltd., 4.12. The ld. Special Counsel for the Revenue again reiterated that quantification of sales tax subsidy in the instant case becomes totally unworkable as the same is dependent on sales tax assessment order which happens after the income tax return is filed. He argued that there cannot be any concept of notional sales tax subsidy. He submitted that notional subsidy is a “Monster”. He argued that Sales Tax and Income Tax department roles are totally different as Sales Tax department in the instant case is concerned with sales tax subsidy subject to maximum cap of Rs.5000 Crores whereas Income Tax department collects tax from assessee. The assessee had not maintained any accounts or details as to how the quantification of sales tax subsidy had been made in the instant case.

4.13 Finally, on without prejudice basis, the ld. Special Counsel for the Revenue argued that even if the aforesaid subsidy is treated as capital receipt, then the same should be reduced from the cost of the asset in terms of Explanation 10 to Section 43 (1) of the Act for A.Yrs. 1999-2000 and 2000- 2001 as the said amendment was applicable only from Asst Year 1999-2000 and onwards.

Page No / Gist of Department Rejoinder by Assessee Para No of Submission Submission filed by Department Counsel vide letter dated 01.09.2020 1 to 3/Para 1 Brief Background stating It is not disputed that in original ROI, the Assessee that in the ROI of had not claimed exemption of any sales tax/purchase respective Assessment tax/entry tax incentive/subsidy. However, Assessee Years, no claim for raised claim before the Tribunal first time and which exemption of sales tax was admitted and restored to file of AO to consider incentive/subsidy as and decide the same as per law after giving capital receipt was opportunity of being heard to the Assessee. claimed. Only when for other issues when matter The Department did not challenge this action of reached the Tribunal, in Tribunal for AY 1996-97 & 1997-98 and AY 1998-99 M/s. Grasim Industries Ltd., view of decision of and where it did for AY 99-00 & 00-01, the HC Hon‟ble Special Bench dismissed the same. Against the same to best of our Mumbai Tribunal in the knowledge, no SLP has been filed. (Refer Page 1168 case of DCIT v. Reliance of Paper Book 5). Industries Ltd. (88 ITD 273), the Assessee sought claimed relief first time by filing an additional ground of appeal and has reproduced the finding of ITAT as under:

―This ground has also been raised for the first time before us by the assessee. Therefore, it requires proper examination and verification of the nature of the benefit and the scheme of the Government under which the benefit has been availed by the assessee. Accordingly, we remit this issue to the record of the AO to consider and decide the same as per law and after giving reasonable opportunity of being heard to the assesse‖ 3 to 10/Para 2 Chart on factual data like At Para 4 of AO‟s order u/s.143(3) r.w.s. 254 (AY data of original 143(3) 1996-97), the AO notes that during the assessment order, ITAT order, proceedings, relevant details have been called for. submission of Assessee in Assessee submitted the details and explained the set aside proceedings, date same. It may also be noted that during the course of of 143(3) r.w.s. 254 order, proceedings u/s 143(3) r.w.s. 254, the AO had called for reason of AO in rejecting documentary evidences to substantiate the claim of sales tax subsidies/incentives (PB 3, Pg. No. 786) to which the claim, quantum of claim Assessee had duly complied with (See for eg:- PB 1, Pg in second round and 31-33 for AY 96-97). quantum of exemption mentioned in additional ground before ITAT and M/s. Grasim Industries Ltd., comments of Department The AO has discussed this issue at Para 7 and observed as under: Basis of AO denying Para 7.1: Records Assessee‟s submissions that scheme exemption in 143(3) r.w.s. were framed for necessary infrastructure in 254: backward/notified area and hence incentive is capital Hon‟ble Bombay High in nature. Reliance is placed on the decision of Court decision upholding Hon‟ble Special Bench Mumbai Tribunal in the case ITAT order in Reliance of DCIT v. Reliance Industries Ltd. (88 ITD 273) (PB Industries Ltd. has been 1, Pg No. 217-232). set aside by Supreme Court to High Court. In Holds that decision of Hon‟ble Bombay High Court original return of income, against Special Bench decision has been set aside by assessee treated incentive Hon‟ble Supreme Court in the case of CIT vs Reliance as of revenue nature Industries Limited (Civil Appeal No 7769 of 2011) (PB 1, Pg. No. 243-244) back to Hon‟ble Bombay Further comments by DR: High Court for fresh adjudication and hence it is clear that issue has not been settled by Apex Court till date.  Para 7.2: Holds sales tax incentive is nothing but ITAT‟s order / revenue received. Alternatively, since incentive directive has not received is on basis of investments made in Fixed been complied Assets, to be reduced from WDV of assets; Thus, this with.  clearly shows that he has examined the Facts have not Schemes/Notifications/other documents and only then been discussed in concluded that incentive is on revenue account. the order. False Para 7.3: Holds that Assessee‟s reliance on AY 1995- averments made 96, OGE to ITAT wherein such incentive is held to be by the assessee. capital receipt as also CIT(A) order for AY 2006-07 to Variation between AY 2008-09 cannot be relied as principle of res figures of subsidy judicata does not apply to income tax proceedings. given to ITAT and Para 7.4: Holds that other decisions relied by Assessee to AO not cannot apply. Also holds that since in Return of explained. Income no claim was made, relying on Hon‟ble  If the figure is Supreme Court in case of Goetz (India) Ltd. vs. CIT based on (284 ITR 323), claim cannot be allowed. investment made in fixed assets, there should be no Submissions: difference. The 1. All details called for were submitted and explained by the Assessee; basis of 2. For AY 1996-97, please see Letter dated computation of September 27, 2012 at Page 26, 28 of Paper subsidy has not been given. Book 1;  3. For AY 1996-97, please see Letter dated Relies on decision August 28, 2012 at Page 30 of Paper Book 1; of Supreme Court M/s. Grasim Industries Ltd., in the case of 4. For AY 1996-97, please see letter dated Sahney Steel and September 27, 2013 at Page 31 of Paper Book Press Works Ltd. 1; v. CIT (228 ITR 5. Please see Annexure A & B referred to in 253). letters dated August 28, 2012 & September 27, 2013 at Page No 33 to 36 Paper Book 1. Similar details were submitted for subsequent assessment years also (please refer Page No. 37 to 58 of Paper Book 1). Thus, details of Scheme, exemptions claimed, yearwise and scheme wise documents all submitted to AO; 6. Please see legal submission filed before AO at Page 761 to 785 of PB 3.

8. Entire written submissions before CIT(A) in second round is from Page 59 to 146 of Paper Book 1; 9. It is a settled law by Hon‟ble Supreme Court and Hon‟ble Bombay High Court that once entire details have been furnished before AO, how the AO writes the order is not in control of the Assessee and merely because there is no discussion in order, it cannot be inferred that AO has not passed a speaking order. See following decisions:

Marico Ltd. v. ACIT (111 taxmann.com 253) (Bom HC)

ACIT v. Marico Ltd. (117 taxmann.com 244) (SLP Dismissed) Idea Cellular Ltd. v. DCIT (301 ITR 407) (Bom HC) (PB 7, Page 1 GKN Sinter Metals Ltd. v. ACIT (371 ITR 225) (Bom HC) (PB 7, 1393) Aroni Commercials Ltd. v. ACIT (367 ITR 405) (Bom HC) CIT v. Prima Paper And Engineering Industry (364 ITR 222) (Bom

10. The Appellant had relied on decisions like M/s. Grasim Industries Ltd., Special Bench in Reliance Industries (supra), Bombay High Court decision in case of Reliance Industries (which now has been set aside back to Bombay High Court by Apex Court), decision of Hon‟ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. (306 ITR 392 (SC) (PB1, Pg. no. 233-238) 11. The AO only states that decision of Bombay High Court is set aside by SC and thus issue not settled by Supreme Court. Thus, he does not dispute that decision of Special Bench is still a good law.

14. The DR has made a baseless allegation that false averments have been made by the Assessee without pointing on what those averments are.

M/s. Grasim Industries Ltd., 15. The DR has highlighted that incentives is based on investment made by the Asseessee in fixed asset. It is submitted that as demonstrated for Maharashtra Scheme, the total incentive is capped at % of total capital investment. See Pages 382, 399, Item No (11) at Page 400 of PB 2. Thus, assuming that the sales tax figures would undergo change, then too, the monitoring or implementing agency would ensure that incentive cannot go beyond the ceiling. Thus, at best it is timing difference. However, for tax purposes it would not make a difference as the claim is of exemption of such incentive/subsidy on capital account.

16. In so far as decision of Supreme Court in Sahney Steel (supra) is concerned, it is submitted that right from subsequent decision of Supreme Court in Ponni Sugars (supra), latest decisions of Hon‟ble J&K HC in the case of Shree Balaji Alloys v. CIT (333 ITR 335) (PB 1, Pg. No. 276-284) affirmed by Hon‟ble SC in the case of CIT v. Shree Balaji Alloys (80 taxmann.com 239) (SC) (PB 1, Pg. No. 239-240), Hon‟ble SC in CIT v. Chaphalkar Brothers (252 Taxman 360) (PB 4, Pg. No. 809-817) and DCIT v. Munjal Auto Industries Ltd (Guj) (Tax Appeal No. 450 with 451 to 453 of 2012) (PB 4, Pg. No. 825-836) SLP Dismissed in DCIT v. Munjal Auto Industries Ltd and others (Civil Appeal No. 6226/2013) (PB 4, Pg. No. 822-824), all have consistently considered both the decisions and yet held that if subsidy is for industrialization or for backward development or employment and not to augment profits, then such incentive is a capital receipt. Assessee relies on all decisions cited in all Paper Books filed.

Pages 10 to Summarizes CIT(A) order Submissions: 16/Para 3 for five years and submits that order of CIT(A) is A detailed written submissions along with factual non speaking. paper book was filed before the CIT(A). The same is M/s. Grasim Industries Ltd., at Page 59 to 146 of Paper Book; DR further comments as The CIT(A) has passed a detailed order. The under: discussion on this issue starts from Page 4 to 12/Para 3. Does not discuss the facts The CIT(A) at bottom of Page 9 notes that the at all. Does not discuss Appellant has filed details of all the incentive schemes how subsidy arose and including notifications of the State Government. Also how it was computed. holds that that applying purpose test as canvassed by Does not obey the Supreme Court in Ponni Sugars (supra) holds subsidy direction of ITAT to to be a capital receipt; examine the facts. Does At Para 3.3.3. at Page 10, holds that despite the not explain how decision Hon‟ble Supreme Court setting aside Bombay High in Ponni Sugar (supra) Court decision in Reliance Industries‟ case (supra), case applies. Does not the ITAT Special Bench decision continues. explain how the order of In the original ITAT proceedings, the matter was the ITAT(SB) in the case restored to the AO and not CIT(A), thus the question of Reliance Industries Ltd. of CIT(A) not following directions of ITAT in first (supra) still holds good round does not arise. after the Supreme Court‟s Reliance is placed on decisions referred above for the judgment setting aside the proposition that once material is before CIT(A), he High Courts order. It is a has considered the same, then merely because order is totally non-speaking, not written in manner expected by the DR, it cannot superficial and perverse be said that there is no application of mind by the order. When there are no CIT(A). facts in the order, how Hon‟ble ITAT would decide the matter? Bereft of facts the order cannot be subjected to judicial scrutiny Pages 16 to Reproduces Grounds of Factual – No Comments; 19 / Para 4 appeal raised by Revenue Grounds are purely legal and don‟t specifically state for all the years that facts are not considered and hence order of lower authorities is perverse. The Department has raised Ground No 1, wherein, the ground is CIT(A) erred in following decision of Bombay High Court in Reliance Industries. The premise is factually wrong as the CIT(A) has relied on decision of Special Bench in Reliance Industries (supra); The present submissions of the Department is mainly on the premise that ITAT should have not entertained additional ground, the AO failed to apply mind and M/s. Grasim Industries Ltd., examine the facts and same for CIT(A). Once it is undisputed that all facts were provided to AO and CIT(A) and they passed orders and also perusing present grounds raised by the Department which are purely legal, can Department be permitted to argue that since no facts were examined, order of CIT(A) is perverse? Para 5(i)/Page Submissions of Revenue The ITAT in its wisdom admitted the additional 19 ground and restored issue to AO to verify facts and The ITAT in first round allow the claim. erred in admitting an While the Assessee had filed additional ground for all additional ground based five years in present appeals. In so far as it relates to on decision of Special AY 96-97 and 97-98, no appeal was filed before Bench in case of Reliance Bombay High Court against the ITAT Order; Industries In so far as It relates to AY 1998-99, the Department filed appeal before the High Court against various other issues but did not raise the issue of admission of additional ground before the High Court; In so far as it relates to AY 1999-00 & 2000-01, the Department raised issue of admission of additional ground by the ITAT, however, the High Court dismissed the said plea of the Revenue. Department did not file/urge the same before Supreme Court; For AY 2001-02, which is not presently fixed before ITAT in this bunch, the Department went to Supreme Court against the Bombay High Court order but did not challenge this issue before Supreme Court; It is thus submitted that in present proceedings, Department cannot be permitted to argue on correctness or otherwise of the ITAT order in first round on admitting additional ground. Thus, there matter stands concluded. Now again Department cannot challenge the settled position.

Para The decision of Special The decision of Special Bench until stayed or reversed 5(ii)/Page 19 Bench in Reliance cannot by the Bombay High Court cannot be ignored and be basis of unsettling being a Jurisdictional ITAT order, it is binding on assessment in case of ITAT. Assessee Infact, even till date following the Special Bench, the Hon‟ble ITAT has been passing order in other cases. In fact, apart from decision of Ahmedabad Tribunal in the case of ACIT v. Genus Electrotech Ltd. (71 M/s. Grasim Industries Ltd., taxmann.com 101) (PB 4, Pg No. 801-808), the Hon‟ble Mumbai ITAT in the case of Welspun India Ltd. v. DCIT (104 taxmann.com 267) also considering the Supreme Court set aside Bombay High Court decision in Reliance Industries SB (supra), decided in favour of Assessee. Said decision of Mumbai ITAT has been affirmed by Hon‟ble Bombay High Court in the case of PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (PB 4, Pg. No. 1012-1017). The Assessee has also filed the order of Jurisdictional High Court in Assessee‟s own case for AY 2001-02 (ITA No. 778 of 2015) where at Para 5, the High Court has observed that decision of Special Bench as on today stands and is not reversed. The Department has not agitated this observation before Supreme Court. Para 5(iii) to Reproduces in part the The Supreme Court has merely allowed SLP by 5(iv)/Page20 order of Hon‟ble Supreme setting aside matter afresh to Bombay High Court and & 21 Court in Reliance wherein directed the Bombay High Court to decide the matter was set aside to question of law. Bombay High Court; The Supreme Court has not commented on Reliance Industries SB decision at all. Thus, to make a The Supreme Court statement that Supreme Court held the decision to be interfered because perverse is a fallacy. decision of Special Bench It is settled law that until a decision is reversed by a was perverse higher court, it is binding.

Para By the time of passing the At para 7.4 of the assessment order for AY 1999-00 in 5(v)/Page 21 fresh assessment order, remand proceedings, the AO held that “Assessee also the Hon‟ble Supreme relied upon various judgements of different High Court‟s judgment was Courts. The said judgements are not applicable to the available to the Assessing assessee‟s case…” Officer. In view of the judgment of the Hon‟ble This shows that AO has examined the issue in detail Supreme Court, the and it is not a case that AO did not examine the case Assessing Officer did not further in view of Hon‟ble Supreme Court decision in examine the case further the case of Reliance Industries. and disallowed the claim of the assesse Para The CIT(A) did not deal The CIT(A) has correctly relied on the decision of SC 5(vi)/Page 21 with the stand taken by the in Ponni Sugars (Supra) and also decision of Special Assessing Officer bench in Reliance Industries SB (supra). He correctly consequent upon the held that validity of Reliance Special Bench continues M/s. Grasim Industries Ltd., crucial judgment of the notwithstanding the remittance of the matter by Hon‟ble Supreme Court. It Supreme Court to Bombay High Court. made a passing reference to the judgment of the The Hon‟ble Ahmedabad ITAT in case of Genus Supreme Court and Electrotech (supra) held as under allowed the appeal purportedly following the ―Mere admission of appeal against a decision, judgment of the Hon‟ble as is elementary, does not affect the binding Supreme Court in the case nature of a judicial precedent. The Special of Ponni Sugars (supra) Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Supreme Court, but was directed to be examined, on merits, by Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the co-ordinate bench was led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is reversed. That is patently incorrect, and when it is pointed out to the Commissioner (DR), he did not have much to say except to rely upon the co-ordinate bench decision which seems to have followed that approach. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, there is no difficulty in recognizing the limitations. The wisdom of a division bench, even if superior-as strenuously argued by the Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of functioning of Tribunal and one must follow the same. The Tribunal rather be guided by the special bench decision - which is exactly what another division bench, on the same set of facts, did in the case of Ajanta Manufacturing Ltd. (supra). There is no dispute that the scheme under which the sales tax and excise duty subsidy are given to this assessee are the same as in the case of Ajanta Manufacturing Ltd. (supra). All the material facts being the same, there is no reason to take any other view M/s. Grasim Industries Ltd., of the matter than the view so taken by the Tribunal. Therefore, the conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries Ltd. (supra) are upheld.‖ Para 5(vii) & The Assessee had not The decision of Hon‟ble Supreme Court in 5(viii)/Pages claimed exemption in its Chowringhee (supra) and Sinclair (supra) both are in 22 & 23 original return and different context. assessments were settled. The same was correct as It is not disputed the generally the sales tax collected sales tax is a trading by an Assessee from its customer is a trading receipt. receipt, following However, the question in present appeals is whether Supreme Court decision in the exemption from sales tax due to case of Chowringhee Schemes/Notification of the respective State Sales Bureau v. CIT (WB) Government due to setting up industries in notified [1973]87 ITR 542 (SC) area is exempt or not. and Sinclair Murray and Co. Pvt. Ltd. V. CIT, The Supreme Court in case of Ponni Sugars (supra), Calcutta,[1974]97 ITR Balaji Alloys (supra) and Chaplakar Brothers (supra) 615. have consistently held that subsidy/incentive in whichever form, if received for setting up industries or industrialization or employment then it is a capital The concluded assessment receipt. are now sought to be reopened on controversial The decision of Special bench in Reliance has not decision of Reliance been set-aside by the Supreme Court and thus Special Bench. Assessee presently the said decision is subsisting and binding. is seeking to claim refund of taxes paid years ago. The Tribunals even post set-aside of Bombay High Court order in Reliance Industries by Hon‟ble Now that that decision of Supreme Court, follows Reliance Industries Special the ITAT Special Bench Bench decision; has been set aside, the raison d‟etre is gone. This Reliance is misplaced of decision of U.P. Rashtriya decision of the Hon‟ble (SC) (supra). In present case, the CIT(A) has followed Supreme Court will relate decision of Supreme Court in Ponni Sugar (supra) back and the decision of decision in Reliance Industries. Both the decisions are the Hon‟ble ITAT setting subsisting and not stayed by any Court. In fact, as on aside the assessments on date, post Ponni Sugars (SC) (supra), the Supreme the basis of this Court in Balaji Alloys (supra) and also Chapalkar controversial decision of Brothers (supra) have reiterated that subsidy for ITAT Special Bench development of back ward area is a capital receipt.

M/s. Grasim Industries Ltd., becomes non-est. Post Chapalkar Brothers (supra) too, SLPs filed by Department have been dismissed. Reliance is placed on Hon‟ble Supreme Court in In Appellant‟s own case for (PCIT Central -1 v. the case of U.P. Rashtriya Grasim Industries Ltd., (ITXA 778/2015 AY 2001- Chinni v. The State of 02), the Jurisdictional High Court inter alia observed U.P. and Ors. Dated 2nd as under: July 1995 , 1995 AIR ―It is true that the judgment of this court confirming 2148, 1995 SCC(4) 738 the order of the Tribunal in the case of Reliance for the proposition that Industries Ltd. has been partially reversed by the once the correctness of a Supreme Court. A question of law has been framed judgement is doubted by and has been placed for consideration of the High the higher court, the said Court. However, this does not mean that the judgment judgement is to be treated of the Tribunal as on today stands reversed or stayed‖ as non est. Lastly it is settled law that the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. Reliance is placed on the decision of Hon‟ble Bombay HC in the case of Balmukund Acharya v. DCIT (310 ITR 310) whereby Article 265 of the Constitution has been relied upon to hold that entitled to where the tax is levied or collected without authority of law. Now if the Supreme Court holds that subsidy is capital receipt, Assessee is entitled to claim refund of taxes wrongly paid earlier. Para 5(ix) and The Bombay High Court Please see comments in Para above. In any event, 5(x)/Page 23 in Assessee‟s own case for against the Bombay High Court decision, though & 24 AY 2001-02 (wherein the department filed SLP they did not challenge High Court held that observation on the aspect of admission of additional additional ground on sales ground. In any event, as of date, the decision of tax subsidy can be Reliance Special Bench is valid and subsisting. admitted and dismissed Department appeal) is per in curium since it did not consider Supreme Court decision in U.P.Rashtriya Chinni (supra). Para 6(i)/Page While setting aside the Para 6 is entire repetition to the effect that neither AO 24 assessment, the Hon‟ble not CIT(A) has discussed any facts. ITAT had observed that the issue requires proper The Assessee relies on submissions made on this examination and aspect against Para 2 and 3 above.

M/s. Grasim Industries Ltd., verification of the nature of the benefit and the scheme of the Government under which the benefit has been availed by the Assessee. Accordingly the Hon‟ble ITAT has restored this issue back to the file of the Assessing Officer and directed the Assessing Officer to decide the issue afresh after considering the decision of the Special Bench in the case of Reliance Industries Ltd. (88 ITD 273 and after giving reasonable opportunity of being heard to the assessee Para 6(ii), The AO did not follow 6(iii), 6(iv) & direction of ITAT. He 6 (v)/Page 24 simply noted that decision and 25 of Special Bench has been set aside by the Supreme Court. He has not examined the facts of any scheme to come to any conclusion as to whether they are revenue or capital receipt. So, for whatever reason, the purpose for which the asessments have been set aside have not been achieved.

The CIT(A) also has not discussed any facts but has given complete relief. He has passed five identical appellate orders for the five assessment years giving a relief of M/s. Grasim Industries Ltd., over Rs.162 crores without discussing facts of any case.

The CIT(A) does not discuss the schemes and their objectives. He does not mention what papers were filed before him. He does not mention how he was satisfied that the „purpose test‟ laid down by the Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd. has been satisfied in respect of each of the schemes.

The CIT(A) has not taken cognisance of the fact that the Assessing Officer has not decided the issue of sales tax incentive in accordance with the direction of the Hon‟ble ITAT. Hence, in compliance with the direction of the Hon‟ble ITAT, the CIT(A) ought to have called for a full factual remand report from the Assessing Officer about the objective and nature and quantum of the purported subsidy in respect each scheme. He has not done that. In the alternative, the CIT(A) ought to have conducted the necessary enquiries himself as his powers are co-terminus with the M/s. Grasim Industries Ltd., powers of the Assessing Officer. All the facts should have been brought on record and the basis of arriving at the conclusion should have been evident from a self-contained comprehensive speaking order of the CIT(A) so that his order could have been subjected to judicial scrutiny. The CIT(A) has not done that also. It is a brief order completely bereft of facts. The CIT(A) seems to say that he has seen the papers and has been satisfied and nothing further needs to be done. The order of the CIT(A) is in complete violation of the direction of the Hon‟ble ITAT and is perverse. Para 8/Page Exemption provisions The moot issue in present proceedings is whether 27 should be strictly sales tax/purchase tax/ entry tax subsidy/incentive, construed against the by whatever name called, by State Governments for subject development of specific areas/under-developed or backward areas is a capital receipt and hence not A cardinal principle of chargeable to tax. statutory interpretation is that while taxing income, The question whether Assessee was eligible sales in case of ambiguity, the tax/entry tax subsidy, whether it complied with the provisions of tax laws conditions under respective schemes or notifications should be liberally etc were to be decided by respective State interpreted in favour of Government and their monitoring or implementing the subject, whereas, agency. It has to be noted that as on date there is no while applying the dispute by such authorities on eligibility of Assessee exemption provisions, the to claim exemptions. tax laws should be strictly interpreted against the Once the subsidy or benefit under the Scheme is not subject in case of disputed by respective State Government, the ambiguity. This is because question under the Income Tax Act is whether such M/s. Grasim Industries Ltd., by getting exemption, the benefits are on capital account or not. The Supreme burden of taxation is Court has repeatedly in Ponni Sugars (supra), Balaji shifted to other taxpayers. Alloys (supra) and Chaphalkar (supra) have held the This is discussed in the same to be on capital receipt. decisions of the Hon‟ble Supreme Court in the case Also, unlike deductions or exemption like section 10 of Novopan India Ltd. or Chapter VI, which may or may be conditional or Hyderabad v. Collector of subject to compliance of specific requirement, in Central Excise and present case, there are no conditions to be complied Customs, Hyderabad with under Income Tax Act. dated 14th September 1994 (Case : Appeal (Civil) In fact, the decision of Supreme Court in Novopan 3556 of 1984) (1994 (supra) was in context of whether the assessee Supp(3) Supreme Court claimed that manufactured melamine faced particle Cases 606 boards MFPB was same as unveneered particle boards which were entitled to total exemption from tariff under item 6 of Exemption Notification No.55 of 1979. In this context the Supreme Court held “The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee – assuming that same principle is good and sound- does not apply to the construction of an exception or an exemption provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability, must establish clearly that he is covered by the said provision. In case of doubt or ambiguity benefit of this must go to the State‖ Thus, clearly in Novopan‟s case, the question was whether assessee was covered under an exemption notification or not and in that context, it was held that where a person invokes an exemption provision, he must prove he is covered by it and in case of doubt, the benefit should go to the State. Para 9 This doctrine of strict If Department has any grievance against decision of (a)/Page 30 Reliance Special Bench (supra), it can challenge the interpretation of and 31 exemption provision has same before appropriate forum. been rampantly violated in this case and uncalled Reliance is placed on the decision of Hon‟ble Bom -for indulgence has been HC in the case of ITO v. Universal Ferro & Allied Chemicals Ltd. (172 ITR 30) (PB 7 Pg. no. 1378- given to the assessee M/s. Grasim Industries Ltd., 1383, specifically Para 7) whereby it was held that once the Special Bench of the Tribunal records the Para 9(a): Decision of Reliance Industries decision after considering the judgement given by (Special Bench) the High Court, then the decision of the Special Bench is binding on all other authorities subordinate to the Tribunal. The ITAT Special Bench did not consider Novopan; Lastly, in Assessee‟s submission, as stated above, The ITAT Special Bench reliance placed by DR on Novopan (supra) is misplaced. decision has serious flaws Para At the cost of repetition, the Assessee again submits The order of the Hon’ble 9(b)/Page 31 that the present appeals by Department is against the ITAT setting aside the assessment for five order of CIT(A) in second round wherein the CIT(A) assessment years is held that sales tax incentive/subsidies/exemptions is against the law laid a capital receipt but directed the AO to verify the quantification thereof. down by the Supreme Court discussed above; The Department had challenged the action of ITAT The assessee was allowed in admitting the additional ground in first round exemption by the State before the Hon‟ble High Court. The Hon‟ble High Government for all five court has decided the matter in favour of the years; Assessee. The Department filed SLP against Following Chowringhee Bombay HC Order for AY 01-02 but not challenged Sales Bureau v. CIT (WB) the ground of admission of add. ground by the ITAT. [1973]87 ITR 542 (SC) In fact, for other years, the Department has not even and Sinclair Murray and filed SLP before Supreme Court. Co. Pvt. Ltd. V. CIT, Calcutta,[1974]97 ITR Once this issue is settled, Department cannot be 615), sales tax collected allowed to agitate this in present proceedings. Also, was part of turnover and this is not the ground before ITAT in present since nothing was paid, it proceedings. became profits. The auditors accepted the In so far as decision of Chowringhee (supra) and same, returns were filed Sinclair Murray (supra), the question before Supreme and taxes were paid; Court as not whether sales tax incentive is a capital receipt or not. No appeal was filed before CIT(A), only after If today the Supreme Court in Ponni Sugars (supra), ten years this additional Balaji Alloys (supra) and Chaphalkar Brothers ground was raised for the (supra) have consistently held that sales tax incentive M/s. Grasim Industries Ltd., first time before ITAT; under State Policies for development of areas of State is capital receipt, then it is settled law that State The ITAT should have cannot retain tax wrongly paid or recovered. asked searching questions as this ground would In so far as refund of tax suo-moto paid by the reduce assessed income Assessee is considered, reliance is placed on the below returned income; decision of Hon‟ble Bom HC in the case of Balmukund Acharya (Supra) referred to above. It is unfair to the Department to give refund of amount of tax suo motto paid by the Assessee and this would be burden on the non exempt tax payers; The only basis for filing additional ground before ITAT was decision of Reliance Industries Special Bench. There the so -called subsidy related to only one state where here the subsidy concerned several states under different schemes. On this ground alone, the additional ground should have been thrown out as vexatious.

The ITAT admitted the additional ground and set aside for examination and verification of nature of schemes and benefits. Additional ground cannot be entertained for fresh investigation into facts. It can be entertained on a pure question of law.

M/s. Grasim Industries Ltd., Para 10/Page Exemption of payment List of judgements of Hon‟ble SC relied upon by the 33 Assessee wherein tax incentive/exemption was held of sales tax is not a subsidy to be a subsidy capital in nature:

“Subsidy” and “Incentive”  Sahney Steel (supra): apart from other incentives are different concepts – received, there was exemption from payment of Different dictionary cited. water rate; The above definition  Ponni Sugars and Chemicals (supra): The clearly states that the incentives conferred under that scheme were two- subsidy is a quantified fold. First, in the nature of a higher free sale sugar sum given from a quota and second, in allowing the manufacturer to government agency to a collect the excise duty on the sale price on the private enterprise. It is free sale sugar in excess of the normal quota, but directly from the to pay to the Government only the excise duty government to the private payable on the price of levy sugar; party and there is no ambiguity about the  Munjal Auto Industries Ltd. (SLP Dismissed) amount of subsidy. It is (supra): not like sale tax exemption where sales tax  Chaphalkar Brothers Pune (supra) is purportedly collected from the customers and Further Hon‟ble Mum T in the case of Reliance retained by the party and Industries Ltd (subsequent assessment years viz. AY is deemed to be a subsidy; 2010-11 to 2012-13) vide order dated 28.09.2018 a third party, Sales-tax followed the decision of Special Bench and held that Officer, adjudicates about ―7. We heard the parties on this issue and perused the quantum of notional the record. The assessee has been given Sales tax sales tax subsidy and the exemption by Government of Gujarat and Uttar assessee expects the Pradesh and the Special bench of Tribunal in the Income-tax Department to asseessee’s own case (referred supra) has held the adopt that figure; notional sales tax receipt is Capital in nature. We notice that the co-ordinate benches of Tribunal has Thereafter, decisions followed the decision rendered by the Special bench tabulated to substantiate in AY 2003-04 to 2009-10 and upheld the decision that in all cases, it was rendered by Ld CIT(A) in holding that the Sales tax actual subsidy received incentive is capital in nature….― and not notional Attention is also invited to amendment to definition of “income” u/s.2(24)(xviii)….where the Legislature has used expression “..assistance in the form of subsidy, grant, incentive….(by whatever name called)”. Thus, the Assessee submits that form of M/s. Grasim Industries Ltd., assistance and nomenclature is not relevant and as stated above various decisions have used incentive, subsidy, grant interchangeably.

The Assessee also submits that the amount of subsidy/incentive/notional subsidy as per relevant Scheme is quantified generally as a % of capital investment and thus fixed. The State Government only provides the said incentives based on the amount of notional sales tax yearly. Outer limit of incentive is fixed. Further, it is only mode of granting the incentive which can be different. The State Government may give cash incentive or State Government would forgo its right to certain state revenues and thereby fulfil its promise to provide incentive in an indirect manner.

Para 11/Page Exemption from payment The quantification was based on State Government 38 of sales-tax is only an Schemes. Once the State Government has not incentive provide to the disputed the same, it cannot be questioned in income industry. Unlike subsidy, tax proceedings where the only issue is whether such which, by its very nature incentives are capital receipt or revenue receipts. is quantifiable, incentive is rather abstract and cannot be easily quantified Para 12/Page Incentive – exemption The incentives on account of exemption of sales tax, 39 from payment of sales purchase tax or entry tax, etc is given by respective tax cannot be quantified. State Governments; The concept of notional The respective State Government would have a subsidy may be relevant monitoring or an implementing agency who would for statistical purposes for govern and monitor the grants/subsidy or incentive estimating roughly what as also compliance of terms for the said sales tax has been subsidy/grant. foregone for assembly debates or formulation of In so far as Maharashtra Scheme is concerned, the economic policies, but it Scheme itself defines and explains what is a has no place in the “notional” sales tax liability (NSTL) (PB 2/Page Income-tax Act for 376). In present case, the NSTL is also quantified by allowing deduction sales tax officer (PB 2/Page 553).

M/s. Grasim Industries Ltd., The third situation is when Further, please see eligibility certificate at PB 2/Page he collects the full sales 400 where SICOM has issued Eligibility Certificate, tax and does not pay to the where various conditions are stipulated, including government. Though it is requirement of maintaining proper accounts, etc (PB against the law, as the 2/Page 401 & 402). assessee is required to pass on the benefit to the Thus, the authorities who are in charge of monitoring customers, that is an issue and implementing have not found fault with the to be addressed by the Assessee‟s claim based on eligibility certificate and Sales-tax Department. The hence, it is submitted the entire argument of DR that Income-tax Department is no one has monitored, how and when the subsidy is concerned with the computed etc should not be accepted. quantum of the exemption claimed. It is for the Infact, as rightly stated by DR, the issues, if any are assessee to establish with to be addressed by the Sales Tax Department. In proper sales bills showing present case, the Assessee has quantified in absolute sales- tax amount terms as seen from PB4/Page 1167 and all separately and supporting document including sales tax return or maintaining the so-called order are part of record and no adverse comment has subsidy register been made by the respective authorities and the AO meticulously for and CIT(A). verification. Reliance on Novopan (supra) in present proceedings Hence, it is impossible to to determine whether a receipt is capital or revenue is find out what is the exact misplaced. amount of the so-called notional subsidy unless the assessee maintains proper sale bills and registers on the basis of which the exact amount of sales-tax collected and not paid during the year can be found out. Thus, relying on decision of the Hon‟ble Supreme Court in the case of Novopan India Ltd. Hyderabad v. Collector of Central Excise and Customs, 14th Hyderabad dated September 1994 (Case : Appeal (Civil) 3556 of M/s. Grasim Industries Ltd., 1984) (1994 Supp(3) Supreme Court Cases 606 (supra), the assessee has failed this test and the claim of exemption should be rejected outright Para 13 and Letter dated July 17, 2019 1. Additional ground on the impugned issue was 14 /Pages 41 and May 3, 2019 filed by filled with Honb‟ble Tribunal in April 2006. The to 45 Department Counsel Tribunal remanded the matter to the file of AO to seeking certain factual consider and decide the issue as per the differences etc provisions of the Income-tax Act, 1961 („the Act‟). Subsequently, the Assessee made elaborate submissions before the AO in proceedings u/s. 143(3) r.w.s. 254 of the Act. These documents are available at page 26 to 58 of the paper book- 1.

1. The relevant index containing list of documents filed with AO are at following pages for respective years. AY Page No. of Paper Book 1 1996-97 33 1997-98 40 1998-99 49 1999-00 54 2000-01 58 The AO did not accept the contention of the Assessee and decided the matter against it. Accordingly, the Assessee filed an appeal before CIT(A) against the order u/s. 143(3) r.w.s. 254 of the Act. Subsequently, CIT(A) vide order dated 25.01.2016, allowed the claim of the Assessee and directed the AO to verify the claim in terms of quantification thereof. The AO gave effect to the order of CIT(A) vide order dated 25.04.2016. Copy of order giving effect to the order of CIT(A) is enclosed at Page No. 78 to 89 of Paper Book – 4.

2. Basis of calculating subsidy and supporting documents such as scheme related papers, M/s. Grasim Industries Ltd., eligibility certificate etc. were already filed before the AO during proceedings u/s. 143(3) r.w.s. 254 of the Act. The same can be checked at page 26 to 58 of the paper book -

1. 1.

3. The amount of sales tax subsidy is based on the amount as per final assessment order in each of the years except in few cases the amount is as per return where the case was not selected for assessment. Please see PB 4/Page 1167.

4. The AO while giving effect to ITAT direction has right adopted the exact figures supported by documents like Scheme/Notification/Returns or Assessment orders under respective state laws. Post CIT(A) order also, once again he has reconfirmed the figures of exemption claimed. Thus, in present proceedings, the Department cannot improve its case where both AO and CIT(A) have not disputed the amount. In any event, as stated above, the subsidy/incentive is generally linked to % of capital investment and thus there is a fixed cap on the same and variation, if any in a particular year would only lead to change in subsequent year and thus, at best, is a timing difference.

5. On perusal of the record, the Assessee is not able to understand from where Ld. DR is referring in point no. 6 of his letter dated 17.07.2019.

6. With reference to point no. 7 of letter dated 17.07.2019, it is submitted that the amount of sales tax subsidy is embedded in the value of sales and not accounted separately.

7. With reference to point no. 8 of letter dated 17.07.2019, it is submitted that no implementing agency who has power to monitor has made any adverse comments.

8. With reference to point no. 9 of letter dated 17.07.2019, it is submitted that all the facts were duly submitted before the AO and CIT(A) and there is no mention of incomplete details by the AO / CIT(A).

9. It is humbly submitted that since the figures of the subsidies/incentives are not disputed by the AO or CITA(A) or the AO post CIT(A)‟s order, M/s. Grasim Industries Ltd., the DR cannot now raise the issue and make a completely new case. Para 15/Page In subsequent hearings 45 also the Department made It may be noted the Assessee is a respondent and request to ITAT to direct appeal is filed by the Department. The Assessee Assessee to give all details has given all documents before AO, CIT(A) and but the Counsel of ITAT. Assessee was evasive. In present proceeding also, the DR has not referred to those documents as accordingly to DR, the same are irrelevant. If DR chooses not to specifically point out any error from documents filed, it cannot be alleged that the Assessee is evasive.

The Assessee has referred to PB4 Pg. 1167 and it has established nexus between various schemes and Sales tax assessment orders/Sales tax Return. Further the Assessee also specifically demonstrated the same for AY 1996-97 since the Department has not at all disputed the chart on Pg 1167 by way of a separate chart filed during the course of hearing on April 7, 2022. Para 16/Page The assessee is not co- All the details filed before AO and CIT(A) in second 45 operating in providing the round (post set aside after admission of additional vital information which is ground by the ITAT) are in Paper Books. Detailed material for proper submission to counter this allegation made above. disposal of the appeal. The information is within the personal knowledge of the assessee In absence of all data being submitted, it should be presumed that assessee has no answer to queries. Para 17/Pages Reliance is placed on The observations made in case of Bajaj Auto (supra) 46 to 48 decision of Mumbai in respect of ITAT order in Reliance for AY 1985-86 Tribunal in Bajaj Auto (90 have been considered and dealt with by Special ITD 153) for definition of Bench decision in case of Reliance Industries “Notional Sales Tax (supra). Subsidy”.

M/s. Grasim Industries Ltd., Thus, definition is not simple. The definition does not deal with the situations discussed in paragraph 12(ii) where no sales -tax has been collected or less sales tax has been collected. In such cases the assessee will get relief from income-tax in respect of part of its non- exempt profit. Second – the time lag.

If the concept of notional subsidy and its determination by the Sales Tax authorities is adopted into income-tax, no income-tax returns can be filed in time. -The notional sales subsidy cannot be subjected to audit.

Para 18/Page Reliance is placed on The reliance in decision of Supreme Court in B.C. 49 decision of Supreme Court Srinivas Setty (supra) is misplaced. in CIT Bangalore v. B. C. In present case, the simple issue is based on the Srinivas Shetty [1981] 128 purpose of the scheme of State Government, the ITR 294(SC). sales tax/entry tax incentive is capital receipt or not. The amount of such incentive is to be quantified by the respective State Governments or implementing There is no provision in agencies. They monitor the conditions in the the Income-tax Act for eligibility certificates. quantifying the so-called Once they have not objected to the same and granted notional subsidy. The incentives, for the direct tax proceedings, the assessee does not maintain Department cannot draw support to say that if the primary records on the machinery provisions fails, the charge fails. basis of which the notional subsidy can be worked out independently. Para 19, Legal Position: Notional In so far as decision of Chowringhee (supra) and 20/Page 49 Sales Tax Subsidy is Sinclair Murray (supra), the question before Supreme M/s. Grasim Industries Ltd., and 50 revenue receipt. Court is not whether sales tax incentive is a capital receipt or not. Sales tax was collected from the customer and not The Supreme Court in Ponni Sugars (supra), Balaji paid and hence profits Alloys (supra) and Chapalkar Brothers(supra) have increased. See consistently held that sales tax incentive under State Chowringhee (SC). Policies for development of areas of State is capital receipt. Because of the nature of regular transactions and Also, once Sales Tax and Entry tax department has incremental profits not disputed the claim of exemption, under the Income accruing to the assessee Tax Act, the question is whether such on day to day basis, there incentive/subsidy is “capital receipt” and not income. is no scope of holding it to Thus, the reliance on decision of Novopan (supra) is be of the nature of capital misplaced. receipt. The natural presumption is that it is a revenue receipt. If the assessee claims it to be capital receipt, as held by the Hon‟ble Supreme Court in the case of Novopan India Ltd. (supra), the burden is on the assessee to establish it with documentary evidence as to how it was accounted for and utilized Para 21/Page Reliance is placed on Subsequent to the decision of Kesoram Ind (supra), 50 Hon‟ble Calcutta High the Hon‟ble SC in the case of Ponni Sugars and Court in the case of subsequently in its recent decisions of Chaphalkar Kesoram Industries and (supra), Balaji Alloys (supra) and Munjal (supra) has Cotton Mills Ltd. v. CIT consistently held that the only test to hold whether a [1991] 191 ITR 518 (Cal.) subsidy is a capital receipt or revenue is its object and purpose. What was the matter between the assessee and Further, Hon‟ble Tribunal in the case of DCIT v. the Sales- Tax Department Indo Rama Textiles Ltd (25 taxmann.com 161) (Del. is no concern to the Trib.) (PB 4 Pg no. 1116-1120) held that sales tax income-tax Department. subsidy is a capital receipt despite reliance placed by the DR on the decision of Kesoram (Supra). The matter would have been different if it had Further, Hon‟ble SC in the case of Ponni Sugars M/s. Grasim Industries Ltd., received a fixed sum from (supra) has observed that form and the point of time the government. In that at which subsidy is paid is irrelevant. case the taxability of that receipt – whether revenue Also, Sales tax exemption is a fixed sum is or capital - could have quantified as a % of capital investment and thus a been issues before the fixed sum of money to be received over a period of Income -tax Department. time. Similar were the facts in the case of Munjal Exemption from sales tax Auto Ind (Guj HC) (SLP Dismissed) (supra) wherein is not an issue. the sales tax exemption was to the extent of a fixed percentage of capital investment which could be However, if the assessee is availed over a period of 9 years (Pg 831 of PB 4). of the view that it is entitled to exemption, it As already stated above, the reliance placed on has to establish its case for Novopan (supra) is misplaced. exemption independently with supporting primary books and documents, under the doctrine of strict construction of exemption provisions as propounded If some benefit of tax arises to the Assessee, as held by the Hon‟ble Supreme by various Hon‟ble HCs and Hon‟ble SC, then the Court in the case of Assessee cannot be stopped from acting as it may Novopan India Ltd. deem fit, to seek the refund as may be due to it as per (supra). the law. Reliance is placed on the decision of Balmukund Acharya (Supra). It cannot wake up after 10 years, cite an inapplicable judgment of a Tribunal, which in any case not relevant now in view of the Supreme Court setting it aside. Para 22 The Department Factual. No comments (i)/Page 52 to reproduces the summary 56 of Schemes prepared by Assessee; Para From the summary 22(ii)/Page 56 of the scheme and 57 furnished by the assessee the The DR is wrong in his conclusion that object of M/s. Grasim Industries Ltd., common features scheme generally is dispersal of industries from of the schemes are Bombay-Thane-Pune belt (Assessee would as under: specifically address this point); (d) The objects The Department is correct that some objectives are for are general industrial development in the State and also to like dispersal accelerate development. The judicial pronouncements of industries relied by Assessee clearly hold that if a subsidy is for from Bombay- industrialisation, growth and employment generation, Thane- Pune it is on capital account; belt to outside. boost up of new industrial If incentives are given after commencement of development business, presumption is that the incentives is of in the state, revenue nature – The Assessee submits that this accelerating submission of Department is contrary to ratio and the pace of observations of following decisions of High Court and development. Supreme Court They are common objectives of Para 14 of decision of Supreme Court in Ponni Sugars any incentive (supra) wherein specifically, it has been held that “it is system. It does the purpose test is which is relevant and the point in not follow that time and form and source of subsidy is immaterial” all incentives would be capital in The J&K High Court in Shree Balaji Alloys Vs. CIT nature. (supra) held that the Tribunal erred in concluding that (e) The incentives in form excise refund and interest subsidy incentives are received were revenue by emphasising on the fact that given after the incentives were not available unless commercial commencemen production started as also that the incentives were t of business. recurring in nature and limited to period of 10 years The from date of commencement of commercial presumption is production. The High Court applied purpose test and that the reversed decision of Tribunal and held above incentive is of incentives were capital receipt. The SLP filed by revenue nature Department is dismissed. [Vide the decision of the Hon‟ble The Supreme Court in CIT Vs. Chaphalkar Brothers Supreme (supra) affirming decision of Jurisdictional Bombay Court in the High Court held that where object of subsidy was case of Sahney M/s. Grasim Industries Ltd., Steel and Press development of multi theatre complexes, it would be a Works Ltd. v. capital receipt. Para 25 of Supreme Court decision at CIT, 1997,228 PB4 Page 817 clearly holds that once object of the ITR 253( SC) subsidy was to industrialise and generate employment, ]. It is for the the fact that subsidy too a particular form and fact assessee to that it was granted only after commencement of establish with production would not make any difference. documents how it is capital receipt. The Supreme Court in CIT Vs. Munjal Auto (supra) [Vide (PB4 Pages 822 to 824) while dismissing SLP filed by Supreme Department upheld view of Gujarat High Court. The Court decision Revenue had taken a specific argument at Para 3 in the case of (PB4/Page 829) that since subsidy would be received Novopan India only once unit goes for production, subsidy was of Ltd. (supra) revenue nature. The High Court referred to the laying down relevant Scheme, also noted that concession was the doctrine of capped at 125% of fixed capital investment and could strict be availed within 9 years. After considering decision construction of of Supreme Court in Ponni Sugar (supra) & Sahney exemption Steel (supra), the High Court held that though the provisions subsidy was computed in terms of sales tax deferment against the and necessarily therefore, accrue after commercial assessee]. production, this by itself would not be sole or (f) The incentive concluding factor. Applying purpose test, the subsidy continues for was held to be on capital account. years – here 10 years, 5 years, 9 years Thus, in each of above cases, the Courts have been and 11 years. mindful of the fact that subsidy was to be received As discussed after commencement and to be availed within 9, 10 or in paragraph 12 years, yet applying purpose test, it was held that 20 above, the subsidy was on capital account. incentive is The Department is consistently repeating that in the continuously original return the Assessee did not claim exemption received for paid taxes and now after decades assessee has raked years and the up the issue of capital receipt. The Assessee submits assessee that post its filing its return of income, if subsequent received judicial pronouncement hold that subsidy received is a incremental capital receipt, and such view is also rendered by the indirect Supreme Court then there should be no bar on the benefits, not Assessee in making additional claim and seeking any direct M/s. Grasim Industries Ltd., lump sum refund of taxes paid inadvertently. In any event, the receipt. Then order of Tribunal in admitting additional ground has the strong become final. presumption according to the normal conduct of business, is that the incentive supplemented the profit of the business and was of revenue nature. The most important point is that assessee in its original return of income treated the transaction, and rightly so, as revenue in character and paid the taxes. But, as narrated earlier, after more than a decade the assessee has raked up the issue of capital receipt. If the assessee claims it to be capital receipt, the burden is for the M/s. Grasim Industries Ltd., assessee to establish with evidence that it is a capital receipt.[ Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict interpretation of exemption provisions against the assessee].

Para 23/Page At the instance of While as demonstrated above that the AO and CIT(A) 57 to 61 Department Counsel, the has examined all the Schemes, Notifications, AO gave comments on Eligibility Certificates, etc, this further proves that now 3rd time, AO is examining the said documents. submissions of the assessee on the Schemes as under: Vikram Ispat, Division Package Scheme of Incentive(“PSI”), 1988 dated 01.10.1988 by State of Maharashtra of Grasim Industries Limited - Sales Tax Preamble:- In order to achieve dispersal of industries Exemption outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of As per Preamble, the Incentives to New Units / Expansion set-up in New Scheme is launched developing region of the State since 1964 under a to intensify and Scheme popularly known as PSI. (Page 369 of PB) accelerate the process of In light of the experience gained from earlier schemes, dispersal of industries the Government has decided to bring in new Scheme outside the Bombay- i.e. Package Scheme of Incentives 1988. Thane-Pune Belt and to attract them to the underdeveloped and The Department conclusion that only if an existing developing areas of the unit is relocated to backward area is eligible is State. fallacious. See PB 2/Page 369/370 which list down M/s. Grasim Industries Ltd., Group A,B,C & D specifying developed, under Only if existing industry developed areas of the State. Page 373 further states in Bombay-Thane-Pune that an existing or a new unit….would also be eligible. belt are relocated in New Unit has been defined at Page 376. Pioneer Unit backward area then they has been defined at Pg. 378 as a large scale New unit would enjoy incentives. set up after October 1, 1988. The Assessee is a However, if a unit is set Pioneer Unit (PB 2 Page 399 is the eligibility up in backward area but certificate issued by SICOM which recognises Vikram not relocated from Ispat unit as a Pioneer Unit). Thus, under the Bombay-Thane-Pune Maharashtra 1988 Scheme, even new units are entitled belt then incentives not to notional sales tax subsidy. available. Judgments relied upon by the Assessee wherein the subsidy received under the PSI Sales tax exemption For the purpose of grant scheme of Maharashtra has been held to be capital in of such subsidies, the nature is tabulated in a Chart attached herewith as methodology of Annexure A. working was based on the value of investments made in these backward/notified areas, which may also include the value of plant & machinery dismantled and relocated to these notified areas from the Mumbai-Thane-Pune belt. The Scheme is silent about relocation of Industrial Units from other areas than the specified Mumbai- Thane-Pune belt.

Therefore, it cannot be said that the Package Scheme of Incentive 1988, of State Government Maharashtra was meant at large for all the units setup in the notified M/s. Grasim Industries Ltd., areas, and hence the purpose of Scheme was not for the setting up of new units, but was primarily for the purpose of decongestion and dispersal of the units located in the Mumbai- Thane-Pune belt/corridor.

(7) Chloro Sulphuric Acid The Department itself refers to certificates and other Division and Caustic documents filed in course of Set-Aside proceedings. Soda Membrance Cell Thus, all documents are in possession of AO. Division of Grasim Entry Tax Notification No.422-6596 dated 09.02.1977 Industries Limited - under Madhya Pradesh Sthaniya Kshetra Me Mal ke Entry Tax exemption Pravesh Par Kar Adhiniyam, 1976 Exemption granted to new industry including any such The certificates and substantial expansion of an existing industry as may other documents filed be approved by the Government (Pg. 460 of PB) with during the course of set- the object of promoting industrial development in the aside proceedings speak State by setting up of new industrial units within the of the capital State of Madhya Pradesh. investment only for the purpose of computation/working New Industry Notification No.A-3-24-94-ST-V(112) of subsidy and not dated 06.10.1994 under Madhya Pradesh Sthaniya indicate the same as Khstra Me Mal ke Pravesh Pare Kar Adhiniya, 1976 the sole criteria for eligibility for the Exemption granted to new industry including any such benefit of scheme. substantial expansion of an existing industry as may be approved by the Government (Pg. 472 of PB) with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh.

Judgment relied upon by the Assessee wherein the subsidy received under the Entry tax exemption scheme of Madhya Pradesh has been held to be capital in nature is tabulated in a Chart attached herewith as M/s. Grasim Industries Ltd., Annexure A.

The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt.

Aditya Cement, Unit of Sales Tax New Incentive Scheme for Industries 1989, Grasim Industries Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated Limited, Sales Tax 6.7.1989) Exemption This Scheme exempts the industrial unit from payment of tax on the sales made in the course of The certificates and inter-state trade or commerce of the goods including other documents filed bye-products and waste items manufactured by them during the course of set- within the State and in case of packing material used aside proceedings speak therewith, the benefit is available only if it is linked of the capital with fixed capital investment (Pg. 481 of PB) with the investment only for the object of promoting industrial development in the purpose of State of Rajasthan. computation/working of subsidy and not Objective at Pg 489 (this does not appear to be indicate the same as scheme document but some commentary on the same) the sole criteria for :- To boost up industrial development in the State the eligibility for the Government have enacted provisions for giving relief benefit of scheme. to the industries in some form or the other so as to assist them in their development, particularly during the initial period required by the industries to come to full maturity. (para 1.1 refers to industrial policy 1990, whereas, above scheme is of 1989) Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Rajasthan has been held to be capital in nature is tabulated in a Chart attached herewith as M/s. Grasim Industries Ltd., Annexure A.

The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt.

Vikram Woollens, Unit Notification no. A-3-24-94-ST-V(108) dated of Grasim Industries 6.10.1994 (Madhya Pradesh) Limited, Sales Tax Exemption granted to new industrial unit with a Exemption capital investment in fixed assets above specified limit (Pg. 492 to 494 of PB) with the object of promoting The certificates and other industrial development in the State by setting up of documents filed during the new industrial units within the State of Madhya course of set-aside Pradesh. proceedings speak of the capital investment only for the purpose of Judgments relied upon by the Assessee wherein the computation/working of subsidy received under the Sales tax exemption subsidy and not indicate scheme of Madhya Pradesh has been held to be capital the same as the sole in nature is tabulated in a Chart attached herewith as criteria for eligibility for Annexure A. the benefit of scheme The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt.

Grasim Cement, Unit 1991 Scheme for units with Capital Investment in M/s. Grasim Industries Ltd., of Grasim Industries fixed assets of Rs. 100 crore or more [Notification no. A-3-27-89-ST-V-(15) dated 19.02.1991 (Madhya Limited, Sales Tax Exemption Pradesh)] Exemption granted to eligible industrial unit The certificates and other established in any district in Madhya Pradesh with a documents filed during the capital investment in fixed assets of Rs. 100 crore or course of set-aside more (Pg. 517 to 518 of PB) with the object of proceedings speak of the accelerating pace of industrialisation in the State of capital investment only Madhya Pradesh. for the purpose of computation/working of Judgments relied upon by the Assessee wherein the subsidy and not indicate subsidy received under the Sales tax exemption the same as the sole scheme of Madhya Pradesh has been held to be capital criteria for eligibility for in nature is tabulated in a Chart attached herewith as the benefit of scheme Annexure A.

The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt.

Sales Tax Exemption Scheme (Haryana General Sales Elegant Spinners, Unit of Grasim Industries Tax Rules 1975) Limited, Sales Tax Exemption (AY 1997- Exemption granted to eligible industrial unit being a new industrial unit or a unit undertaking expansion or 98) diversification (Pg. 536 of PB) with the object of As per the Assessee‟s promoting investment in backward area. submission for Assessment Year 1996- 97, on perusal of the Scheme (Page nos.178- Judgments relied upon by the Assessee wherein the 179) of the Assessee, it subsidy received under the Sales tax exemption is seen that the scheme of Haryana has been held to be capital in exemption is provided in nature is tabulated in a Chart attached herewith as M/s. Grasim Industries Ltd., respect of newly Annexure A. established industrial undertakings or The highlighted portion in Department submissions expansion of existing clearly prove that subsidy was capped based on % of industrial undertakings capital investment. Further, the Department has not subject to fulfilment of pointed out any clause of the Scheme which suggests capital investment and that Subsidy was to augment profits of the Company. increase in annual In fact, the Scheme clearly provides for production criteria industrialisation (by granting benefits to new units or mentioned therein. expansion of existing units) and in some cases, However, neither the generation of employment and thus, applying purpose scheme, nor the test, it be held that subsidy is a capital receipt. Eligibility Certificate provide the methodology for quantification of sales tax exemption vis-à-vis capital investment. Hence no exemption available, not being capital subsidy Para 24 / It is impossible to make The Assessee has never stated that only because the Pages 61 to out from the submissions incentive is linked to amount invested in capital asset, 63 of the assessee as to how the incentive is capital receipt. The Assessee has they are relevant to the always emphasized upon the purpose test. crucial issue for The Assessee has given all Scheme documents to AO. determination of the The CIT(A) has allowed the appeals and it is notional subsidy being Department appeal to the Tribunal. It is for the of revenue or capital Department to show from the Schemes that purpose of nature. The assessee has subsidy is to augment profits of the Company. confused that any reference to investment The Assessee has never contended that all the in fixed assets for Schemes are alike. The Assessee has submitted all the measuring the quantum Schemes which have been considered by the AO and of subsidy is same as CIT(A). For brevity, the Assessee is attaching investment in capital herewith Annexure A which lists down decisions of assets. It is a settled Tribunal where similar schemes of State Government position of law that (in the present case, Maharashtra, Haryana, Rajasthan reference to investment and Madhya Pradesh) have been considered and in capital assets is only a Tribunal has held the subsidy/incentive/grant to be a measure for capital receipt. In any event, neither the AO nor the quantification of the DR while arguing his appeals have referred to specific M/s. Grasim Industries Ltd., subsidy and it does not scheme and pointed out that they are for augmenting lead to the inference that the profits. the subsidy is of capital nature; The assessee is making general submission treating all the schemes alike ignoring the observation on facts by the ITAT Special Bench in the case of Reliance Industries Ltd, that the schemes of Maharashtra are different from those of Madhy Pradesh and Andhra Pradesh. As directed by the Hon‟ble Bombay High Court in assessee‟s own case cited in paragraph 5(ix) above, assessee was required to point out the specific clauses in each agreement pertaining to each assessment year instead of making generalized submission Without any assistance from the assessee, the Assessing Officer has faced imponderable difficulty in trying to make a sense out of the irrelevant submissions Para 25/Page The assessee is diverting All five years, it is department appeal and hence if the 63 and 64 attention from facts by grounds are defective then on that ground Department focussing on case laws. appeal should be dismissed. For example for each year it is relying on the M/s. Grasim Industries Ltd., decision of the Special The Assessee has not merely relied on decision of Bench in the case of Reliance Industries (SB). In fact it has also relied on Reliance Industries Lt. other decisions of Supreme Court and other High 88 ITD 273. The Courts (Please refer legal submissions made before decision has created the AO and CIT(A) at Page No. 761 to 785 of Paper Book controversial concept of 3 and Page No. 59 to 146 of the Paper Book 1 notional subsidy. Then respectively); in some appeals the word notional is removed and they refer The Assessee submits that despite the Hon‟ble to sales tax subsidy. Supreme Court directing the Bombay High Court to Several grounds of consider the question of law raised in Reliance appeal mentioned in this Industries, the decision of Special Bench is subsisting order suffer from this and in force and binding on all benches of ITAT. defect The decision of the Special Bench in Reliance Industries Ltd. would create a dangerous trend and ought to be nipped in the bud. It is a wrong decision challenging the basic integrity of the Income-tax Act. Para 26- Reliance is placed on Essentially, the Department has relied on decision of 39/Pages 64 decision of Supreme Supreme Court in Sahney Steel(supra). Other to 97 Court in Sahney Steel decisions cited by the Department are prior to decision and Press Works Ltd. of Supreme Court in Ponni Sugars (supra). v. CIT [1997] 228 ITR 253 (SC) The Department in its Written submissions at Page 64 Further reliance is (iv) has reproduced part of decision of Supreme Court placed on the following in Sahney (supra) where it was hled that the subsidies decisions which have were given to encourage setting up of industries in followed the ratio laid State of Andhra Pradesh by making the business of down by Sahney Steels production and sale of goods in the state more (supra): profitable”. Thus, it appears that object of the Scheme in case before Sahney was to make industries more profitable.  CIT v. Dusad M/s. Grasim Industries Ltd., Industries [1986]162 ITR 784 (MP) The Department has stressed on the fact that in Ponni  CIT v. Chhindwara Sugars, the Madras High Court held that subsidy Fuels [2000]245 ITR linked to purchase tax was of revenue nature and same 9,(Cal) has not been challenged before the Supreme Court. It  CIT v. Rajaram Maize is submitted that firstly, the Madras High Court Products [1998] 234 observed that terms of concession shows that ITR 667 (MP) concession was given to meet the cost of running the  CIT v. Rajaram Maize business after it has gone to production (In the present Products [2001] 251 case, the Department has not pointed out any Scheme ITR 427 (SC) which proves that subsidy was for meeting cost of  V.S.S.V. Meenakshi running the business). Secondly, the mere fact that in Achi [1966] LXI ITR Ponni, the said question was not challenged before 253 (SC) Supreme Court cannot lead to conclusion that any  Merinoply and incentives after commencement are of revenue nature. Chemicals Ltd. v, CIT [1994] 209 ITR 508 (Cal.) The Supreme Court in Ponni Sugars (supra) after  CIT v. Godavari considering the decision of Sahney held that the only Plywood Ltd [1987] relevant test for identifying whether a subsidy is 168 ITR 632(AP) capital in nature or revenue is its Object i.e. if the  CIT v. P J Chemicals object is to set up a new unit of expansion of existing Ltd. [1994]210 ITR unit then it is revenue in nature but if it is to augment 830 (SC) profits then it is revenue in nature. The relevant para  K.C.P. Ltd.v. CIT of the said decision is reproduced below: [2001]245 ITR421 ―That test is that the character of the receipt in (GC) the hands of the assessee has to be determined  Bajaj Auto Ltd. v. with respect to the purpose for which the subsidy DCIT [2004] 90 ITD is given. In other words, in such cases, one has 153 (Mumai) to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was 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 was to enable the assessee to set up a new unit or to expand the existing unit M/s. Grasim Industries Ltd., then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant.‖ Lastly, the DR has wrongly observed that even before Supreme Court in Ponni, the Supreme Court solely decided in favour as the subsidy was only for repayment of loan. The exact same argument was taken in case of M/s. Jindal Steel & Power Ltd. (ITA No. 167/Del/2009), however, the Tribunal rejected the same at Paras 36 to 38 and ultimately following decision of Balaji Alloys (supra) and Chaphalkar (supra) decided in favour and held at Para 43 that subsidy received under the Madhya Pradesh scheme is a capital receipt. Copy of the decision in case of Jindal Steel (supra) is attached herewith as Annexure B. The subsequent decisions of High Court and Supreme Court have consistency applied the following tests, ignoring the form, time and source of subsidy:  Shree Balaji Alloys (J & K HC) (supra) affirmed by Hon‟ble SC (supra)  Chaphalkar Brothers (SC) (supra)  Munjal Auto (Guj), SLP Dismissed(supra)  PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4, Pg. No. 1012-1017)  PCIT v. Capgemini India P. Ltd. (90 taxmann.com 409) (Bom HC) (PB 4, Pg No. 1018-1020)  CIT v. Indian Petrochemicals Corpn. Ltd. (102 taxmann.com 181) (Bom HC) (PB 4, Pg No. 1164- 1166)  CIT v. Nirma Ltd. (88 taxmann.com 481) (Guj) (PB 4, Pg. No. 837-840)  CIT v. Rasoi Ltd. (245 CTR 667) (Calcutta HC) Lastly, the DR relied on the fact that decision in case of Dusad Industries (MP) (supra) was relied before AO and which has been overruled by decision in case of Sahney Steel (supra). The Assessee submits as evident from 143(3) order of AY 98-99, the AO at Para 5.4 held that facts of Dusad (supra) and in the present case is different. If facts are different then the question of commenting on Dusad does not asrise.

M/s. Grasim Industries Ltd., In any event, post Chaphalkar (supra) various Tribunals have in context of incentive under 1994 and recent schemes of MP, decided in favour and held subsidy to be capital receipt. Moreover, before the Hon‟ble Tribunal, presently the Assessee has neither cited nor relied on Dusad Industries (supra). Page 97/98 II. ISSUE -WHETHER The sales tax exemption received by the Assessee has not been granted for any specific plant or CAPITAL SUBSIDY machinery but to encourage industrial development. SHOULD BE DEDUCTED FROM Firstly, explanation 10 to section 43(1) has been THR ACTUAL COST inserted by Finance Act (No. 2), 1998 w.e.f. April FOR THE PURPOSE OF 1, 1999, hence the question of applying Explanation CALCULATION OF 10 would not arise for AY 96-97 to 98-99. DEPRECIATION In any event, reliance is placed on the following 40. The common judicial pronouncements wherein after considering ground of appeal on this the provisions of explanation 10 to section 43(1) as issue is as under: well as the decision of Hon‟ble SC in the case of P.J. Chemicals (210 ITR 830), it was held that sales ―On the facts and tax incentive cannot be reduced from the cost of in the capital investment as the percentage of capital circumstances of investment is only a mode of quantification of the case and in subsidy and not a payment to meet any portion of law, the Ld. the „actual cost‟: CIT(A) erred in not allowing the  PCIT v. Welspun Steel Ltd. (103 taxmann.com cost of the Block 436) (Bom HC) (PB 4 pg. 1012-1017) of Assets to be  Nestle India Ltd v. DCIT (1954/Del/2014) (PB reduced by 4 pg. 1089-1115)  amount of subsidy CIT v. Rasoi Ltd. (46 taxmann.com 214) (Kol T) treated as capital  Sasisri Extractions Ltd. v. ACIT (122 ITD 428) receipt in view of (Vizac T) (PB

1. Pg. No. 364-367) Explanation 10 to section 43(1) of the I.T. Act.” This ground will arise in case the subsidy is held to be capital receipt. The ground is self- explanatory. Particularly from M/s. Grasim Industries Ltd., the assessment year 1999-2000 when the Explanation 10 was inserted in section 43(1), the law is clear that the subsidy will be reduced from the actual cost for the purpose of calculating depreciation. Further as explained while discussing the Supreme Court decision the case of P.J. Chemicals Ltd. (supra), not deducting the so called notional subsidy while calculating the depreciation has weakened the main case of claiming exemption of notional subsidy from taxation.

M/s. Grasim Industries Ltd., 5.1. Further the ld. AR also filed yet another rejoinder to the oral submissions made by the ld. Special Counsel for the Revenue as under:-

I: Ground (i) and (ii): Sr. DR’s Arguments Assessee’s Submissions No.

Holds that decision of Hon‟ble Bombay High Court against Special Bench decision has been set aside by Hon‟ble Supreme Court in the M/s. Grasim Industries Ltd., Sr. DR’s Arguments Assessee’s Submissions No. case of CIT vs Reliance Industries Limited (Civil Appeal No 7769 of 2011) (PB 1, Pg. No. 243-244) back to Hon‟ble Bombay High Court for fresh adjudication and hence it is clear that issue has not been settled by Apex Court till date. Para 7.2: Holds sales tax incentive is nothing but revenue received. Alternatively, since incentive received is on basis of investments made in Fixed Assets, it is to be reduced from WDV of assets. Thus, this clearly shows that he has examined the Schemes/Notifications/other documents and only then concluded that incentive is on revenue account. Para 7.3: Holds that Assessee‟s reliance on AY 1995-96, OGE to ITAT wherein such incentive is held to be capital receipt as also CIT(A) order for AY 2006-07 to AY 2008-09 cannot be relied as principle of res judicata does not apply to income tax proceedings. Para 7.4: Holds that other decisions relied by Assessee cannot apply. Also holds that since in Return of Income no claim was made, relying on Goetze India Limited (SC), claim cannot be allowed.

Submissions: 17. All details called for were submitted and explained by the Assessee; 18. For AY 1996-97, please see Letter dated September 27, 2012 at Page 26, 28 of Paper Book 1; 19. For AY 1996-97, please see Letter dated August 28, 2012 at Page 30 of Paper Book 1; 20. For AY 1996-97, please see letter dated September 27, 2013 at Page 31 of Paper Book 1; 21. Please see Annexure A & B referred to in letters dated August 28, 2012 & September 27, 2013 at Page No 33 to 36 Paper Book 1. Similar details were submitted for subsequent assessment years also (please refer Page No. 37 to 58 of Paper Book 1). Thus, details of Scheme, exemptions claimed, year- wise and scheme wise documents all submitted to AO; 22. Please see legal submission filed before AO at Page 761 to 785 of PB 3.

23. Thus, clearly entire directive of ITAT of examining facts including scheme, purpose and sales tax order/notifications all have been submitted. Unlike the amount referred to in additional ground before ITAT, the AO refers to exact amount claimed by the Assessee in set aside proceedings.

24. Entire written submissions before CIT(A) in second round is from Page 59 to 146 of Paper Book 1; 25. It is a settled law by Hon‟ble Supreme Court and Hon‟ble M/s. Grasim Industries Ltd., Sr. DR’s Arguments Assessee’s Submissions No. Bombay High Court that once entire details have been furnished before AO, how the AO writes the order is not in control of the Assessee and merely because there is no discussion in order, it cannot be inferred that AO has not passed a speaking order. See following decisions:

Marico Ltd. v. ACIT (111 taxmann.com 253) (Bom HC)

ACIT v. Marico Ltd. (117 taxmann.com 244) (SLP Dismissed) Idea Cellular Ltd. v. DCIT (301 ITR 407) (Bom HC) (PB 7, Page 1396) GKN Sinter Metals Ltd. v. ACIT (371 ITR 225) (Bom HC) (PB 7, Para 14, Page 1393) Aroni Commercials Ltd. v. ACIT (367 ITR 405) (Bom HC) CIT v. Prima Paper And Engineering Industry (364 ITR 222) (Bom HC)

The Assessee submits that all factual documents like Schemes/Notification/Eligibility Certificates/Sales Tax Orders/Returns/etc. all are also filed before the Tribunal and if Department has not disputed the same specifically, it is submitted that order of CIT(A) cannot be reversed.

4. The Assessee had raised the additional ground before the Tribunal, Quantification which was admitted and send back to the Assessing Officer. The fact  Sales tax that amount mentioned in those ground and as finally determined by the assessment AO may be different as the figures taken in additional ground were an orders were not estimate. No relief has been given based on amounts taken in additional available at the grounds. In fact, the AO and CIT(A) have based on actual documents time of filing now quantified the amount of subsidy. The AO firstly determined the ROI. amount while passing order u/s.143(3) r.w.s.

 The DR has relied only on the Maharashtra Scheme for said allegation. A‟s Maharashtra However, it is submitted that said allegation is baseless. Infact, the scheme Maharashtra scheme clearly specifies that even a new unit can claim provides for sales tax exemption. See FPB 2 Pg No. 373/376 merely shifting existing units from Mumbai- Pune-Thane belt to backward areas which cannot amount to industrialisatio n. The said scheme is for shifting and not for setting up new units.

Commencement: It has been settled by Hon‟ble Supreme Court in case of Ponni Sugars  Period when (supra) that the form/mechanism of computing subsidy is irrelevant subsidy and merely because subsidy is granted post commencement of received is production, does not mean it is to augment profits. Further reliance is relevant. If placed on the following judicial precedents wherein the subsidy subsidy is received was held to be capital in nature even when received post received with commencement of production: reference to sales  CIT v. Ponni Sugars & Chemicals Ltd. (Supra) tax/purchase  Shree Balaji Alloys v. CIT (J&K HC) (333 ITR 335) [PB 1 Pg. tax/etc, clearly no. 276-284] Affirmed by SC (80 taxmann.com 239) [PB 1 Pg. it is post no. 239-240] commencemen  DCIT v. Munjal Auto Industries Ltd (Guj) (Tax Appeal No. t of business, 450 with 451 to 453 of 2012) (PB 4 Pg. no. 825-836) {SLP hence revenue dismissed by SC (Civil Appeal No. 6226/2013) (PB 4 Pg. no. in nature 822-824)}  CIT v. Chaphalkar Brothers (252 Taxman 360) (SC) (PB4 Pg.  Reliance was No. 809-817) (Para 9 and 22) placed on  MAN Industries India Ltd v. ACIT v. ACIT (ITA No. 6696, Hon‟ble 6697 & 6698/MUM/2014) (PB 1 Pg. no. 322-350) Supreme Court  Mahindra & Mahindra Ltd. v. DCIT (7382/Mum/2017) (PB 1 in case of Pg. no. 1021-1079) Sahney Steel &  Grasim Industries Ltd. (Successor to Aditya Birla Nuvo Press Works Limited) v. ACIT (ITA No. 7062/M/2014) (Mum.) [PB4 Pg. Ltd. v. CIT M/s. Grasim Industries Ltd., Sr. DR’s Arguments Assessee’s Submissions No. (228 ITR 253) No. 841-863] (SC) [DR PB Pg. No. 158- 173] anything before commencemen t is capital, after commencemen t is revenue. Purpose: It has been settled by Hon‟ble HCs after considering Sahney  Steel(Supra) , Ponni Sugars (supra) and Chaphalkar Brothers (supra) If subsidy is that where the object of the subsidy is to for development of state and given for acquiring a setting up of industries in backward areas it is capital in nature and where it is to augment profits, it is a revenue subsidy. Few such capital asset decisions are as under: then it‟s a capital subsidy, if it is for  PCIT v. Ankit Metal & Power Ltd. (Cal. HC) (416 ITR 591) supplementing (PB7 Pg. no. 1367-1374) profits then it‟s  PCIT v. Shyam Steel Industries Ltd. (Cal. HC) (303 CTR 628) a revenue (PB7 Pg. no. 1375-1377) subsidy The Jurisdictional HC in CIT v. Kirloskar Oil Engines Ltd. (364 ITR  If it is to 88) (Pg 245-247/PB 1) after referring to both the decisions of Sahney enable running Steel (supra) and Ponni Sugars (supra) has held that ―If the object of of business, the subsidy scheme is to enable the assessee to run the business more subsidy is profitably then the receipt is on the revenue account. On the other revenue even if hand, if the object of the assistance under the subsidy scheme was to it is used to enable the Assessee to set up a new unit then the receipt of subsidy was establish units on the capital account.‖ in backward areas. Clearly The DR has not referred to any specific schemes filed in the Paper sales tax Book to point out any clauses of the scheme which prove that scheme subsidy is to was for supplementing profits. The Schemes provide that the subsidy is enable running of business, for encouraging growth, industrialisation, employment and in some since purchase, cases, dispersal of industries. sales and entry tax are all after The decision of Hon‟ble High Court in case of Kesoram (supra) was commencemen relied upon by DR, but despite the same the Hon‟ble Tribunal in the t. Relies upon case of DCIT v. Indo Rama Textiles Ltd (25 taxmann.com 161) (Del. Hon‟ble High Trib.) (PB 4 Pg no. 1116-1120) held that sales tax subsidy is a capital Court in case receipt as Kesoram (supra) was prior to recent SC decision. of Kesoram Industries & The Assessee submits that the total subsidy receivable is based on % of Cotton Mills capital/fixed asset investments made. Thus, the outer limit is Ltd. v. CIT quantified. Thus, under the sales tax/purchase tax laws etc, the total (191 ITR 518)

M/s. Grasim Industries Ltd., Sr. DR’s Arguments Assessee’s Submissions No. (Cal HC) (DR amount of subsidy would not change. Based on assessments, etc only PB Pg. No. amounts in some years may change but the outer limit fixed based on 133-147) capital investment would always remain the same.  If subsidy was The Paper books contain all factual details including a fixed sum, schemes/notifications/returns/assessment order under sales tax etc. The the matter Assessee submits the same are relevant. would have been different. % of capital investment provided in the schemes is only a measure of calculation  Assessee has dumped 2000 pages which are not relevant.

5 Since Assessee is The Assessee submits that the claim of exemption from tax raised by claiming exemption the Assessee and allowed by the CIT(A) is on the ground that subsidy from direct tax, being capital receipt is not chargeable to tax u/s.

4. The Supreme Court, strict interpretation High Court and ITAT have consistently held that subsidy for has to be applied. industrialisation or for setting up industry in backward area or Assessee has to generating employment is capital receipt. substantiate that it has satisfied all The Assessee is not claiming deduction under section 80IA/80IB etc. conditions for which specifies conditions to be complied with. In present case the getting the subsidy incentive was given by State Government and if relevant authorities of from the State. State Government which implement or monitor the Schemes, have Reliance was placed granted incentive, for present appeal, only relevant issue is, based on on decision of purpose test whether it is capital or revenue. Thus, reliance on decisions Hon‟ble Supreme of Hon‟ble apex court decisions in case of Novopan (supra) and M/s. Court in case of Dilip Kumar (Supra) is misplaced. Novopan India Ltd. Hyderabad v. CCEC {Supp (3), Supreme Court Cases, 606} (DR PB Pg. no. 123- 132) and CC (Import) v. M/s. Dilip Kumar & Company & Ors. (Civil Appeal No.

M/s. Grasim Industries Ltd., Sr. DR’s Arguments Assessee’s Submissions No. 3327 of 2007) 6 After considering the Hon‟ble SC (PB 1 Pg. no. 243-244) setting aside DCIT v. Reliance Industries Ltd. (88 to Hon‟ble Bom HC, Hon‟ble Mumbai Tribunal SB decision in the case ITD 273 (Mum) of Reliance Industries Ltd (supra) has been still held to be binding, valid and subsisting in the Assessee‟s own case for AY 2001-02 (ITA (SB) (PB 1 Pg. No. 217-232) decision No. 778 of 2015) by Hon‟ble Bombay High Court which is the is perverse Jurisdictional HC (SLP dismissed).  Hon‟ble SC Further, various Tribunals have consistently taken a view that post has set aside Supreme court also, the decision of Reliance (SB) is binding and the SB subsisting; decision to ACIT v. Genus Electrotech Ltd (71 taxmann.com 101) (Ahm. T) (PB 4 Hon‟ble Bom Pg. no. 801-808) HC and hence Welspun India Ltd. v. DCIT (104 taxmann.com 267) (Mum T) the same is not affirmed by Hon‟ble Bombay High Court in the case of PCIT v. a good law. Welspun Steel Ltd. (103 taxmann.com 436) (PB 4, Pg. No. 1012- 1017).  The Hon‟ble Tribunal did Further it has been held by Hon‟ble Bom HC in the case of ITO v. not look into Universal Ferro & Allied Chemicals Ltd (172 ITR 30) (PB 7 Pg. no. aspects like 1378-1383, specifically Para 7) that once the Special Bench of the whether Tribunal records the decision after considering the judgement given by subsidy a/c the High Court, then the decision of the Special Bench is binding on all maintained, other authorities subordinate to the Tribunal. utilisation, it is poorly drafted; In any event, to best of our knowledge, the decision of Reliance (SB) (supra) itself has not been challenged before Bombay High Court. It is  for Department to demonstrate that very same decision of SB is Order of challenged and pending before Bombay High Court. Reliance (SB) is perverse; In our view, the Reliance Special Bench has passed a detailed order after considering the preamble of the scheme as also various decisions  Made various including those of Supreme Court and hence, same cannot be ignored. allegation on manner in Lastly, the ITAT in Appellant‟s own case (as successor to Aditya Birla which Reliance Nuvo Limited) (PB 4, Pg 852) has never held or observed anything (SB) was contrary to Reliance (SB), but decided to apply purpose test as held by decided, etc; Ponni Sugars (supra) and decided in favour independently of Reliance SB by holding that VAT incentive under UP State Government Scheme  In Assessee‟s is a capital receipt own case, the Tribunal has not followed Reliance (SB), See PB 4 (Page 841 onwards)

7 Incentive v. The amendment to section 2(24)(xviii) which is made effective from M/s. Grasim Industries Ltd., Sr. DR’s Arguments Assessee’s Submissions No. Subsidy April 1, 2016 whereby subsidy has been held to be taxable also uses the term “assistance in the form of a Subsidy or grant or cash incentive or The Assessee has duty drawback or waiver or concession or reimbursement (by whatever merely received an name called)” incentive and not a subsidy. Sales tax Thus, even legislation has not made any distinction between the term exemption is only a Subsidy or Incentive etc. so-called notional subsidy. There is Further, in so far as Maharashtra Scheme is concerned, the Scheme difference between itself defines and explains what is a “notional” sales tax liability an incentive, a (NSTL) (PB 2/Page 376). In present case, the NSTL is also subsidy and there is quantified by sales tax officer (PB 2/Page 553). nothing like notional subsidy. Various Hon‟ble Tribunals have either only used the term incentive or the term subsidy/incentive interchangeably and held the same to be capital in nature. Please See: - DCIT v. Reliance Industries Ltd. (88 ITD 273) (Mum SB) (PB 1 Pg. no. 217-232) - CIT v. Ponni Sugars & Chemicals Ltd. (supra) - Shree Balaji Alloys v. CIT (333 ITR 335) (J & K HC) (PB 1 Pg. no. 274-284) affirmed by SC in CIT v. Shree Balaji Alloys (80 taxmann.com 239) (PB 1 Pg. no. 239 - 240) - MAN Industries India Limited vs ACIT (ITA No. 6696, 6697 & 6698/Mum/2014) (PB 1 Pg. no. 322-350) - ACIT vs Economic Explosive Limited (ITA 202 to 206/Nag/2015) (PB 1 Pg. no. 351-354) - Grasim Industries Ltd. (Successor to Aditya Birla Nuvo Limited) v. ACIT (ITA No. 7062/M/2014) (Mum.) (PB 4 Pg.no. 841-863) - Mahindra & Mahindra Ltd. v. DCIT (7382/Mum/2017) (Mum.) (PB 4 Pg.no. 1021-1079) - Birla Corporation Ltd. v. DCIT (55 taxmann.com 33) (Kol.) (PB 4 Pg. no. 1128 - 1145)

The Assessee submits that sales tax exemption received by it is a capital receipt without having regard to the terminology used i.e. Subsidy or incentive. II Subsidy should be The sales tax exemption received by the Assessee has not been granted for any specific asset but to encourage industrial development. reduced from cost of capital asset in view of Reliance is placed on the following judicial pronouncements wherein after considering the provisions of explanation 10 to section 43(1) as explanation 10 to section 43(1) well as the decision of Hon‟ble SC in the case of P.J. Chemicals (210 ITR 830), it was held that sales tax incentive cannot be reduced from the cost of capital investment as the percentage of capital investment is only a mode of quantification of subsidy and not a payment to meet any M/s. Grasim Industries Ltd., Sr. DR’s Arguments Assessee’s Submissions No. portion of the „actual cost‟:  PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4 pg. 1012-1017)  Nestle India Ltd v. DCIT (1954/Del/2014) (PB 4 pg. 1089-1115)  CIT v. Rasoi Ltd. (46 taxmann.com 214) (Kol T)  Sasisri Extractions Ltd. v. ACIT (122 ITD 428) (Vizac T) (PB 1 Pg. No. 364-367) Additional Additional Grounds 1 to 8 filed by the Revenue are argumentative in grounds nature and pure facets of Department‟s various arguments to support its original grounds. Assessee has already responded to those arguments above and in Annexure 1.

5.2. From the aforesaid table, it is very clear that the assessee had furnished all the requisite documents to justify its claim of exemption that the subsidy received by it are capital receipts not chargeable to tax, before the ld. AO as well as before the ld. CIT(A) and that both the lower authorities had examined the very same documents and had arrived at their respective conscious conclusions. Hence the argument advanced by the ld. Special Counsel for the Revenue that both the lower authorities had not followed the directions of this Tribunal in the first round of proceedings wherein this Tribunal had directed the ld. AO to make thorough examination of the various subsidy / incentive schemes and decide its taxability. is completely devoid of merits. Since the matter has been already examined by both the lower authorities and respective conclusions drawn thereon by them , though contrary to each other, we hold that there is no need for these appeals to be remitted back to the file of ld. AO for denovo adjudication, as prayed by the ld. Special Counsel for the Revenue.

M/s. Grasim Industries Ltd., 5.3. We deem it fit and appropriate to refer to the various subsidy / incentive schemes of various state governments to understand its objects and purpose, which would ultimately decide its taxability.

Vikram Ispat, Division of Grasim Industries Limited - Sales Tax Exemption : Package Scheme of Incentive(“PSI”), 1988 dated 01.10.1988 by State of Maharashtra In order to achieve dispersal of industries outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New Units / Expansion set-up in developing region of the State since 1964 under a Scheme popularly known as PSI. This is evident from page 369 of the Paper Book filed by the assessee, which are forming part of judicial records. We find that the ld. Special Counsel for the Revenue submitted that only existing units when relocated to backward area would be eligible for the subsidy / incentive. This in our considered opinion is incorrect. We find from Pages 369 and 370 of the Paper Book 2 filed , which are part of judicial records, it lists down Group A,B,C & D specifying developed, under developed areas of the State. Page 373 of the Paper Book 2 further states that an existing or a new unit would also be eligible for the benefit. New Unit has been defined at Page 376 of the Paper Book. Pioneer Unit has been defined at Pg. 378 as a large scale New unit set up after October 1, 1988. We find that all these facts are mentioned in the Subsidy Schemes itself. We find that the assessee before us falls in the category of „Pioneer Unit‟ which is also evident from the eligibility certificate issued by SICOM enclosed in Page 399 of the Paper Book 2, which recognises M/s. Grasim Industries Ltd., Vikram Ispat unit as a Pioneer Unit. Thus, under the Maharashtra 1988 Scheme, even new units as well as existing units are entitled to notional sales tax subsidy.

We find that the assessee furnished the Package Scheme of Incentive, 1988 dated 01/10/1988 by State of Maharashtra before the lower authorities. These documents are enclosed in pages 368 to 398 of the factual paper book which are part of judicial records. We find that the assessee furnished the eligibility certificate for Sales Tax Incentive issued by SICOM in favour of Vikram Ispat before the lower authorities. These documents are enclosed in pages 399 to 422 of the factual paper book which are part of judicial records. We find that the assessee furnished the Certificate of Entitlement No.N29M/136/LM/660 issued by Dy. Commissioner of Sales Tax (Incentive and Enforcement), Sales Tax department, Maharashtra in favour of Vikram Ispat before lower authorities. These documents are enclosed in pages 423 to 436 of the factual paper book which are part of judicial records.

Chloro Sulphuric Acid Division and Caustic Soda Membrance Cell Division of Grasim Industries Limited - Entry Tax exemption Entry Tax Notification No.422-6596 dated 09.02.1977 under Madhya Pradesh Sthaniya Kshetra Me Mal ke Pravesh Par Kar Adhiniyam, 1976 Exemption granted to new industry including any such substantial expansion of an existing industry as may be approved by the Government with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. This fact is evident from Page 460 of the Paper Book.

M/s. Grasim Industries Ltd., New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 under Madhya Pradesh Sthaniya Khstra Me Mal ke Pravesh Pare Kar Adhiniya, 1976 Exemption granted to new industry including any such substantial expansion of an existing industry as may be approved by the Government with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. This fact is evident from Page 472 of the Paper Book.

We find that assessee furnished the Entry Tax Notification No.422-6596 dated 09/2/1977 under Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before the lower authorities. These documents are enclosed in pages 460 to 466 of the factual paper book which are part of judicial records. We find that assessee furnished the provisions of Section 10 of Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before lower authorities as referred to in above notification vide page 467 of the paper book which is part of judicial record. We find that assessee furnished the Certificate of Eligibility for exemption of Entry Tax in favour of Chloro Sulphuric Acid Division before lower authorities. These documents are enclosed in pages 470 to 471 of the factual paper book which are part of judicial records.

We find that assessee furnished the New Industry Notification No.A-3-24-94- ST-V(112) dated 06/10/1994 under Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before the lower authorities. These documents are enclosed in pages 472 to 478 of the factual paper book which are part of judicial records. We find that assessee furnished the Certificate of Eligibility for exemption of Entry Tax in favour of Caustic Soda Membrance Cell M/s. Grasim Industries Ltd., Division before the lower authorities. These documents are enclosed in pages 479 to 480 of the factual paper book which are part of judicial records.

We find that assessee furnished the Eligibility Certificate of Entry Tax in favour of Poly Aluminium Chloride Division before the lower authorities. These documents are enclosed in pages 468 to 469 of the factual paper book which are part of judicial records.

We find that assessee furnished the New Industries Notification No. A-3-11- 86(74)-ST-V dated 16/10/1986 under Madhya Pradesh General Sales Tax Act, 1958 before the lower authorities in respect of Poly Aluminium Chloride Division. These documents are enclosed in pages 437 to 455 of the factual paper book which are part of judicial records. We find that assessee furnished the provisions of Section 12 of the Madhya Pradesh General Sales Tax, 1958 as referred in the above notification before the lower authorities. These documents are enclosed in pages 456 to 457 of the factual paper book which are part of judicial records. We find that assessee furnished the Certificate of Eligibility for Exemption from payment of Sales Tax under the Madhya Pradesh General Sales Tax Act, 1958 and Central Sales Tax Act, 1956 before the lower authorities in respect of Poly Aluminium Chloride Division. These documents are enclosed in pages 458 to 459 of the factual paper book which are part of judicial records.

Aditya Cement, Unit of Grasim Industries Limited, Sales Tax Exemption Sales Tax New Incentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989)

M/s. Grasim Industries Ltd., To boost up industrial development in the State, the Government have enacted provisions for giving relief to the industries in some form or the other so as to assist them in their development, particularly during the initial period required by the industries to come to full maturity. (para 1.1 refers to industrial policy 1990, whereas, above scheme is of 1989)

This Scheme exempts the industrial unit from payment of tax on the sales made in the course of inter-state trade or commerce of the goods including bye-products and waste items manufactured by them within the State and in case of packing material used therewith, the benefit is available only if it is linked with fixed capital investment with the object of promoting industrial development in the State of Rajasthan. This fact is evident from Page 481 of the Paper Book.

We find that the assessee furnished Sales Tax New Incentive Scheme for Industries, 1989, Rajasthan (S.No.764:F-4(35)FD Gr.IV/87-39 dated 06/07/1989) before lower authorities. These documents are enclosed in pages 481 to 489 of the factual paper book which are part of judicial records. We find that assessee furnished the Eligibility Certificate in favour of Aditya Cement before lower authorities. These documents are enclosed in pages 490 to 491 of the factual paper book which are part of judicial records.

Vikram Woollens, Unit of Grasim Industries Limited, Sales Tax Exemption Notification no. A-3-24-94-ST-V(108) dated 6.10.1994 (Madhya Pradesh) Exemption granted to new industrial unit with a capital investment in fixed assets above specified limit with the object of promoting industrial development in the State by setting up of new industrial units within the State M/s. Grasim Industries Ltd., of Madhya Pradesh. This fact is evident from Pages 492 to 494 of the Paper Book filed which are part of judicial records.

We find that assessee furnished Sales Tax Exemption Scheme (M.P.Vanijyikar Adhiniyam, 1994) before lower authorities. These documents are enclosed in pages 492 to 501 of the factual paper book which are part of judicial records. We find that the assessee furnished Exemption Certificate in favour of Vikram Woollens before lower authorities vide page no. 502 of the paper book which is part of judicial record. Grasim Cement, Unit of Grasim Industries Limited, Sales Tax Exemption 1991 Scheme for units with Capital Investment in fixed assets of Rs. 100 crore or more [Notification no. A-3-27-89-ST-V-(15) dated 19.02.1991 (Madhya Pradesh)] Exemption granted to eligible industrial unit established in any district in Madhya Pradesh with a capital investment in fixed assets of Rs. 100 crore or more (Pg. 517 to 518 of PB) with the object of accelerating pace of industrialisation in the State of Madhya Pradesh. This fact is evident from Pages 517 to 518 of the Paper Book filed which are part of judicial records.

We find that assessee furnished Sales Tax Exemption Scheme (Madhya Pradesh Industrial Policy & Action Plan, 1994) before lower authorities. These documents are enclosed in pages 503 to 516 of the factual paper book which are part of judicial records. We find that assessee furnished the 1991 scheme for units with capital investment in fixed assets of Rs.100 Crores or more before the lower authorities. These documents are enclosed in pages 517 to 522 of the factual paper book which are part of judicial records. We find that M/s. Grasim Industries Ltd., assessee furnished Certificate of Eligibility for exemption of tax in favour of Grasim Cement before the lower authorities. These documents are enclosed in pages 523 to 528 of the factual paper book which are part of judicial records.

Elegant Spinners, Unit of Grasim Industries Limited, Sales Tax Exemption (AY 1997-98) Sales Tax Exemption Scheme (Haryana General Sales Tax Rules 1975)

Exemption granted to eligible industrial unit being a new industrial unit or a unit undertaking expansion or diversification with the object of promoting investment in backward area. This fact is evident from Page 536 of the Paper Book filed which are part of judicial records.

We find that assessee furnished Sales Tax Exemption Scheme (Haryana General Sales Tax Rules, 1975) before the lower authorities. These documents are enclosed in pages 529 to 543 of the factual paper book which are part of judicial records. We find that assessee furnished Exemption Certificate in Form VAT G1 in favour of Grasim Industries Ltd., (Unit Elegant Spinners) before the lower authorities. These documents are enclosed in pages 544 to 545 of the factual paper book which are part of judicial records.

5.3.1. We further find that the assessee had furnished all the Sales Tax assessment orders and the /Entry Tax assessment orders together with respective Sales Tax returns, as the case may be, of various States for various assessment years for quantification of Notional Sales Tax / Entry Tax subsidy figure, before the lower authorities, which are tabulated hereunder:- AY Sales tax Orders / Entry Tax Orders – AY 1996-97 1996-97 I Sales Tax Assessment Order for 546 - 559 M/s. Grasim Industries Ltd., F.Y. 1995-96 of Vikram Ispat. ii Sales Tax Assessment Order for FY 560 - 562 1995 -96 of Poly Aluminium Chloride - State Sales Tax iii Central Sales Tax Assessment 563-564 Order for FY 1995 -96 of Poly Aluminium Chloride - Central Sales Tax iv Entry Tax Assessment Order for 565-567 FY 1995 -96 of Poly Aluminium Chloride v Entry Tax Assessment Order for 568-571 FY 1995 -96 of Chloro Sulphuric Acid Division Vi Entry Tax Assessment Order for 572-573 FY 1995 -96 of Caustic Soda Memrance Cell Vii RST Return Form for FY 1995-96 574 - 592 of Aditya Cement viii Sales Tax Assessment Order for FY 593 - 595 1995-96 of Vikram Woollens ix Sales Tax Assessment Order for FY 596 - 597 1995 -96 of Grasim Cement

AY Sales tax Orders / Entry Tax Orders – AY 1997-98 1997-98 I Sales Tax Assessment Order for 598 - 604 F.Y. 1996-97 of Vikram Ispat. ii Entry Tax Assessment Order for 605 - 607 FY 1996 -97 of Chloro Sulphuric Acid Division iii Entry Tax Assessment Order for 608 - 610 FY 1996 -97 of Caustic Soda Memrance Cell iv Sales Tax Assessment Order for FY 611 - 614 1996-97 of Aditya Cement V Sales Tax Assessment Order for FY 615 - 620 1996-97 of Vikram Woollens vi Sales Tax Assessment Order for FY 621 - 625 1996 -97 of Grasim Cement Sales tax Orders / Entry Tax AY Orders – AY 1998-99 1998-99 I Sales Tax Return for FY 1997 -98 626 - 634 of Vikram Ispat ii Entry Tax Assessment Order for 635 - 637 M/s. Grasim Industries Ltd., FY 1997 -98 of Chloro Sulphuric Acid Division iii Entry Tax Assessment Order for 638 - 642 FY 1997 -98 of Caustic Soda Memrance Cell iv Sales Tax Assessment Order for 643 - 649 A.Y. 1997-98 of Aditya Cement v Sales Tax Assessment Order for FY 650 - 651 1997-98 of Vikram Woollens vi Sales Tax Assessment Order for FY 652 - 659 1997 -98 of Grasim Cement vii Sales Tax Assessment Order for FY 660 - 662 1997-98 of Elegant Spinners, Bhiwani Sales tax Orders / Entry Tax AY- Orders – AY 1999-00 1999-00 i Sales Tax Assessment Order for 663 - 680 F.Y. 1998-99 of Vikram Ispat. ii Entry Tax Assessment Order for 681 - 687 FY 1998 -99 of Caustic Soda Memrance Cell iii Sales Tax Assessment Order for FY 688 - 697 1998-99 of Aditya Cement iv Sales Tax Assessment Order for FY 698 - 703 1998-99 of Vikram Woollens v Sales Tax Assessment Order for FY 704 - 710 1998 -99 of Grasim Cement vi Sales Tax Assessment Order for FY 711 - 713 1998-99 of Elegant Spinners, Bhiwani AY Sales tax Orders / Entry Tax Orders – AY 2000-01 2000-01 i Sales Tax Return for FY 1999 -00 714 - 720 of Vikram Ispat ii Entry Tax Assessment Order for 721 - 727 FY 1999 -00 of Caustic Soda Memrance Cell iii Sales Tax Assessment Order for FY 728 - 730 1999-00 of Aditya Cement iv Sales Tax Assessment Order for FY 731 - 736 1999-00 of Vikram Woollens v Sales Tax Assessment Order for FY 737 - 744 1999 -00 of Grasim Cement vi Sales Tax Assessment Order for FY 745 - 748 1999-00 of Elegant Spinners, M/s. Grasim Industries Ltd., Bhiwani 5.3.2. We find from the perusal of the Maharashtra Scheme as detailed hereinabove, the said scheme itself defines and explains what is “Notional Sales Tax Liability”. The said scheme also contemplates that the “Notional Sales Tax Liability” is required to be quantified by the Sales Tax Officer while framing the Sales Tax assessment for each of the years. Hence, the concept of “Notional Sales Tax Liability” is part and parcel of the Subsidy / Incentive Scheme brought out by the Maharashtra State Government. While this is so, we are unable to comprehend ourselves to accede to the arguments of Ld. Special Counsel for the Revenue that there cannot be any concept of “Notional Sales Tax Liability” and the quantification thereon becomes unworkable. We further strongly condemn the expressions used by the Ld. Special Counsel for the Revenue with regard to the said “Notional Sales Tax Liability” as a “Monster”. The aforesaid entire scheme papers were indeed fully furnished by the assessee before the lower authorities, which were categorised by the ld. Special Counsel for the Revenue as “Junk”, “Trash” and “Rubbish”. We strongly condemn this expression made by ld. Special Counsel for the Revenue for giving scant respect for the extensive documentation furnished by the assessee, which in any case, were not even disputed / doubted by the lower authorities. Even the Special Bench decision rendered by this Tribunal in the case of Reliance Industries Ltd., reported in 88 ITD 273 was erratically criticised by the ld. Special Counsel for the Revenue which have already been detailed hereinabove. In fact, the ld. Special Counsel for the Revenue proceeded on the premise that the Special Bench decision of this Tribunal has been reversed by the Hon‟ble Supreme Court and sent back to the Hon‟ble Bombay High Court. This aspect as to whether at all the decision of Special Bench in the case of Reliance Industries Ltd., referred to supra M/s. Grasim Industries Ltd., would still hold the field or not, is dealt separately hereinbelow. In these circumstances, we deem it fit and appropriate to direct the ld. Special Counsel for the Revenue to kindly be careful while arguing the cases in future before any judicial forum by not using such crude expressions.

5.3.3. We find that the ld. Special Counsel for the Revenue vehemently submitted that since the subsidy / incentive would be determined subsequently based on Sales Tax assessment order, which happens after the date of filing of return, the quantification of subsidy becomes unworkable and that the Income Tax department is not required to follow-up with the Sales Tax authorities regarding the final determination of Sales Tax liability. In our considered opinion, this objection is of no relevance at all in view of the fact that the respective schemes had indeed clearly specified the manner in which quantification of subsidies based on sales tax assessment orders which has to be done in future. Moreover, the competent authority which is incharge of actually granting the subsidy to the assessee had not objected to these points. In respect of Maharashtra Scheme, SICOM, being the implementing agency, had listed various conditions to be complied with including accounting, utilisation etc., and SICOM had duly examined the requisite conditions to be complied with. No adverse observations were indeed made by the competent authority. The competent authority had indeed granted subsidy to the assessee as finally determined by the respective sales tax officers which is in consonance with the subsidy schemes of various State Governments. The role of Income Tax department is only to examine whether the said receipt of subsidy would constitute capital or revenue receipt in the hands of assessee – nothing more nothing less. In any case, the lower authorities below had not even disputed this fact, which is vehemently argued by the ld. Special Counsel for the Revenue. This tantamounts to ld. Special M/s. Grasim Industries Ltd., Counsel for the Revenue making out a new case before the Tribunal and trying to travel beyond the brief, which is not permissible as per Law. Hence, we have no hesitation in summarily dismissing these arguments of ld. Special Counsel for the Revenue, as devoid of merits.

5.3.4. We further find that all the aforesaid schemes were subject matter of adjudication and consideration by various Tribunals across the country wherein, it was held that the subsidy / incentive received pursuant to the aforesaid schemes were capital receipts. The details of the various cases are tabulated hereunder:-

Sr. Judgement Paper Objective of Subsidy Scheme in the case law relied No. Book upon Pg. No. A Maharashtra Scheme 1 DCIT v. 217- Sales Tax exemption Scheme of Government of Reliance 232 Maharashtra, 1979 for disperse the industries outside Industries (PB 1) the Bombay-Thane-Pune belt and to hasten the pace of Ltd. (88 industrialization in the developing regions of the State. ITD 273) (Mum T SB) Reliance 879- Industries 991 Ltd v. ACIT (PB 4) (I.T.A. No. 7299/Mum/ 2017) 2 ACIT v. 351- Package scheme of Incentive 1993 of Government of Economic 354 Maharashtra which is an extension of Schemes Explosive (PB 1) introduced in 1964, 1979 and 1988 with the object Limited being industrial development of backward district as (ITA 202 to well as generation of employment 206/Nag/20 15)

M/s. Grasim Industries Ltd., Sr. Judgement Paper Objective of Subsidy Scheme in the case law relied No. Book upon Pg. No. 3 DCIT v. 1116- Sales Tax exemption Scheme of Government of Indo Rama 1120 Maharashtra, 1993 for promotion of industrialization Textiles Ltd. (PB 4) in backward areas of the State of Maharashtra through (25 Scheme of incentives. taxmann.co m 161) (Del. T) 4 ACIT v. 1121- Package Scheme of Incentive, 2001 of the Sanvijay 1127 Government of Maharashtra granting subsidy for Rolling and (PB 4) setting up project in view for employment generation Engineering and for dispersal of industry Ltd. (224/Nag/20 15) (Nag. T) 5 LG 992- Package Scheme of Incentive, 2001 of Government of Electronics 996 Maharashtra providing refund of VAT with the India (P.) (PB 4) objective of promotion of industry and balanced Ltd. v. regional growth, diversion of industry to less ACIT (83 developed areas of the State and increase in taxmann.co employment. m 179) (Del. T) 6 Mahindra & 1021- Package Scheme of Incentive, 2001 of Government of Mahindra 1079(P Maharashtra (an extension of 1993 scheme) granting Ltd. v. B 4) to intensify and accelerate the process of dispersal of DCIT industries to the less developed regions and promoting (7382/Mum/ high tech industry in developed areas of the State of 2017) Maharashtra 7 Bombay 290- Package scheme of Incentive 2007 of Government of Dyeing 321 Maharashtra granting subsidy with a view to &Mfg Co (PB 1) encourage the dispersal of industries to the less Ltd v. DCIT developed areas of the State of Maharashtra (87 taxmann.co m 213) (Mum. T) 8 Innoventive 1222- Package Scheme ofIncentive, 2007 ofGovernment of Industries 1246 Maharashtragranting subsidy with a view to encourage Ltd v. DCIT (PB 6) the dispersal of industries to the less developed areas (ITA No. of the State of Maharashtra 601/PN/201 3)(Pune Trib.)

M/s. Grasim Industries Ltd., Sr. Judgement Paper Objective of Subsidy Scheme in the case law relied No. Book upon Pg. No. B Rajasthan Scheme 9 CIT v. Shri 248- Rajasthan Sales Tax/Central Sales Tax Exemption Cement 275 Scheme for Industries, 1998 for promoting industrial (ITA No. (PB 1) development of the State and encourage new capital 204 / 2010) investment in industry and thereby promote (Raj HC) employment 10 Birla 1128- Sales Tax Incentive under Rajasthan Sales Tax Corporation 1145 Exemption Scheme of 1998 for encouragement of Ltd. v. (PB 4) setting up of industrial project or expansion of existing DCIT (55 industrial projects taxmann.co m 33) (Kol.) C Haryana Scheme 11 DCIT v. 822- Scheme framed by the Munjal 824 Government of Haryana Auto (PB 4) Haryana General Sales Tax Rules, 1975 for capital Industries outlay expended by the Assessee for setting up of the Ltd and unit in case of a new industrial unit and diversification others, SLP of existing unit. dismissed in Civil Appeal No. 6226/2013 against Gujarat HC order in Tax Appeal No. 450 with 451 to 453 of 2012 (Munjal Auto) &Nirma Ltd in Appeal No. 226 of 2010 which is also covered by this SC order M/s. Grasim Industries Ltd., Sr. Judgement Paper Objective of Subsidy Scheme in the case law relied No. Book upon Pg. No. D Madhya Pradesh Scheme 12 Universal 1146- Subsidy received under Madhya Pradesh Industrial Cables Ltd 1163 Investment Promotion Assistance Scheme, 2004with Vs. DCIT (PB 4) an objective to increase employment and establishing [2015] 57 new industrial unit by enhancing new capital taxmann.co investment in the state of Madhya Pradesh. m 95 (Kolkata - Trib.) 13 ITO vs. 1191- Subsidy received under Madhya Pradesh Industrial M/s. Agya 1200 Policy, 2004 with an objective to increase capital Auto Ltd (PB 6) investment in backward areas in the state of Madhya (ITA No. Pradesh. 540/Ind/201 8) (Indore T) 14 Udai Plastic 1247- State Investment Subsidy and Sanction Rules, 1989 of (P.) Ltd. v. 1249 MP state with an objective of setting up industries in ITO (98 (PB 7) backward area ITD 231) 15 ParleAgro P 1250- Industrial Promotion Policy, named as “Madhya Ltd. v. 1263 Pradesh Udyog NiveshSamvardhanYogna 2004" with ACIT (ITA (PB 7) an objective to accelerate the pace of industrialization, No. maximize employment prospects and develop the 6209/Mum/ infrastructure in the backward areas 2013) 16 Prism 1264- Sales tax exemption under Madhya Pradesh Industrial Cement Ltd. 1341 Investment Promotion Assistance Scheme-2004 with v. (PB 7) an objective to accelerate the pace of industrialization, DCIT(I.T.A to maximize the employment prospects and balanced . No. 804 & regional development 805/Mum/2 018) 17 M/s 1342- Vardhman 1366 Textiles (PB 7) Limited (ITA No. 787/Chd/20 15)

M/s. Grasim Industries Ltd., Sr. Judgement Paper Objective of Subsidy Scheme in the case law relied No. Book upon Pg. No. 18 M/s. Jinal - Notification No. 40 for exemption from sales tax dated Steel & 24.04.2000 issued u/s 8(5) of the Central Sales Tax Power Ltd. Act, 1956 to encourage new industrial units, v. ACIT development of backward areas and create (ITA employment opportunities in public interest 167/Del/200 9) E Entry Tax Scheme- Madhya Pradesh 19 M/s. Jindal - Notification No. 41 and 42 for exemption from entry Steel & tax 24.04.2000 issued u/s 8(5) of the Central Sales Tax Power Ltd. Act, 1956 to encourage new industrial units, v. ACIT development of backward areas and create (ITA employment opportunities in public interest 167/Del/200 9)

5.3.5. From the perusal of the aforesaid schemes together with its objects and preamble, we find that the dominant purpose for which the incentive scheme per se introduced by the respective State Governments was only for the purpose of setting up of industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting up of the units based on the fixed percentage of the capital cost and not for running the business of the assessee. Moreover, even this subsidy which is determined based on sales tax assessment orders for 9 years, 6 years etc., are subject to maximum outer limit already fixed under the respective schemes. Though the quantification of M/s. Grasim Industries Ltd., the subsidy has been made post commencement of business, the measurement of subsidy is immaterial. In our considered opinion, none of the schemes contemplated to finance the assessee in the form of subsidy / incentive for meeting the working capital requirements of the assessee company post commencement of business. Hence, by applying the purpose test, apparently, the subsidy / incentive received in the instant case would only have to be construed as capital receipts not chargeable to income tax. In this regard, we find that ld. AR placed reliance on the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392, wherein the incentive conferred under that scheme were two fold. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon‟ble Supreme Court in para 14 of its decision had held that “character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial.” In fact, the Hon‟ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:-

14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home grown beet. The company M/s. Grasim Industries Ltd., was paid various sums under British Sugar Industry (Assistance) Act, 1931, out of monies provided by the Parliament. The question was whether these monies were to be taken into account as trade receipts or not. The object of the grant was that in the year 1981, in view of heavy fall in prices of sugar, sugar industries were in difficulty. The Government decided to give financial assistance to certain industries in respect of sugar manufactured by them from home-grown beet during the relevant period. Lord Macmillan held that— "What to my mind is decisive is that these payments were made to the company in order that the money might be used in their business." He further observed that: "I think that they were supplementary trade receipts bestowed upon the company by the Government and proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received."

5.3.6. Yet another decision was rendered by Hon‟ble Supreme Court in the case of CIT vs. Chapalkar Brothers reported in 400 ITR 279 which held that where the object of respective subsidy schemes of State Government was to encourage development of multiple theatre complexes, incentives would be held to be capital in nature and not revenue receipts. The relevant operative portion of the judgment is reproduced hereunder:-

5.3.7. We further find that the Hon‟ble Gujarat High Court in CIT vs. Munjal Auto Industries Ltd., in Tax Appeal No.450 with 451-453 of 2012 dated 28/01/2013 also had an occasion to consider the very same issue in dispute before us. In this case also, the Revenue had taken a specific argument that since subsidy would be received only once unit goes for production, subsidy would be revenue nature. The Hon‟ble Gujarat High Court referred to the relevant subsidy scheme noted that concession was capped @125% of fixed capital investment and could be availed within 9 years. The Hon‟ble Gujarat High Court after considering the decision of Hon‟ble Supreme Court both in the case of Sahney Steel and Press Works Ltd., and Ponni Sugars and Chemicals referred to supra had held as under:-

―7. From the provisions of the said scheme, it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver, in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted, such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to percentage of fixed capital investment.

5.3.7.1. It is pertinent to note that against this judgement, civil appeals were dismissed by the Hon‟ble Supreme Court vide its order dated 08/05/2018 on the ground that the issue is already covered in the decision of Chapalkar Brothers referred to supra.

M/s. Grasim Industries Ltd., 5.3.8. Before us, the ld. Special Counsel for the Revenue referred to various decisions of Hon‟ble High Courts. But, all those decisions were rendered prior to the decision of Hon‟ble Supreme Court referred to above. Hence, the decisions relied upon by the ld. Special Counsel for the Revenue would not advance the case of the Revenue.

5.3.9. It is pertinent to note that in each of the aforesaid decisions of Hon‟ble Supreme Court, the Courts have been mindful of the fact that the subsidy has to be received after commencement of business and to be availed within 9,10 & 12 years, as the case may be, and yet by applying purpose test, it was held that subsidy was on capital account.

5.4. Applicability of Special Bench decision of Mumbai Tribunal in the case of Reliance Industries reported in 88 ITD 273.

The ld. Special Counsel for the Revenue vehemently submitted that the decision of the Hon‟ble Special Bench has been reversed by the Hon‟ble Supreme Court by remitting the matter back to the Hon‟ble Bombay High Court. First of all, it would be relevant to bring on record the crux of the decision of the Special Bench in the case of Reliance Industries Ltd. In case of Special Bench decision of Reliance Industries Ltd, the scheme dealt with sales tax exemption under the scheme of Government of Maharashtra, 1979. Further the said scheme was implemented by SICOM. The following question was referred by the Hon‟ble President, Tribunal to the Special Bench:

―Whether, on the facts and in the circumstances of the case and in law the assessee company is justified in its claim that the sales-tax incentive allowed to it during the previous year in terms of the relevant Government order constitutes M/s. Grasim Industries Ltd., capital receipt and is not to be taken into account in the computation of total income?‖ The Hon‟ble Tribunal for Asst Years 1984-85 and 1985-86 had held the sales tax exemption to be capital in nature as the same was given for industrial development of the backward districts as well as generation of employment. However, the matter was referred to the Special Bench as it was alleged that the decision for AY 1985-86 was virtually overruled by subsequent decision of the Mumbai Tribunal in the case of Bajaj Auto Ltd (ITA No. 49 and 1101 of 1991).

The Special Bench held that the decision of Bajaj Auto has not overruled the decision of Hon‟ble Mumbai Tribunal for AY 1985-86 on the following basis: i) There cannot be any question of overruling the decision of one Bench by another bench of equal strength as it would be contrary to the established norms of judicial system in the country. ii) Even on merits it cannot be said that the Tribunal has laid out more stress on the form of the scheme and not their substance as held in Bajaj Auto as the Tribunal in the order for AY 1985-86 has explained the difference between exemption schemes of Maharashtra and Andhra Pradesh in detail. iii) Reliance placed by Tribunal in Asst Year 1985-86 on the decision of Hon‟ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (228 ITR 253) cannot be said to be erroneous. The Tribunal did recognise that the object with which subsidy is given is decisive as laid down by Hon‟ble Supreme Court. If the M/s. Grasim Industries Ltd., scheme is for setting up or expansion of industry in a backward area, it will be capital, irrespective of the modality or source of fund. If the scheme is for assisting of carrying out of business operations, it is revenue. Hon‟ble Supreme Court demonstrated the principle that the object of the subsidy must be given primary importance over the source of fund. 5.4.1. Ultimately the Special Bench after placing reliance on the decision of Hon‟ble Supreme Court in Sahney Steel and Hon‟ble Madras High Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. Reported in 260 ITR 605 held that the decision of the Tribunal in Asst Year 1985-86 is correct and observed the following:

37….The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of Reliance Industries Ltd. ( supra) had correctly interpreted and understood the ratio of the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.‘s case (supra).

―(c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restoring the issue of taxability of the sale tax exemption benefit of Rs.58 crores availed by the assessee to the file of the Assessing Officer for deciding afresh after considering the decision of the Special Bench of the ITAT in the case of DCIT V. Reliance Industries Ltd., 88 ITD 273, which has not been accepted by the Revenue? (d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in entertaining the additional ground without appreciating that the assessee had treated the amount of sales tax exemption benefit of Rs.58 crores as revenue receipt and had included this amount in the returned income and it had been taxed accordingly and the assessee did not raise this issue before the CIT(A) and the issue had attained finality?‖ 5.4.3. While disposing of the questions Nos. c & d, the Hon‟ble Jurisdictional High Court categorically held that the decision of the Special Bench of Tribunal had not been reversed or stayed by any higher judicial forum and it holds good as on date. The relevant operative portion of the judgement of Hon‟ble Jurisdictional High Court in this regard is reproduced as under:-

―3. We will first address the questions no. (c) and (d), which are different elements of the same issue. The respondent assessee had received a subsidy. It is undisputed that up to the level of Income Tax M/s. Grasim Industries Ltd., Appellate Tribunal, the assessee did not raise a contention that such subsidy was towards capital account and, therefore, not taxable. However, before the Tribunal such a contention was raised. The Tribunal by the impugned judgment relied upon its earlier judgment for the Assessment Year 1999-2000 in case of this very assessee and restored the issue back to the Assessing Officer. In the earlier order, the Tribunal had remanded the issue to the file of the Assessing Officer "to decide the issue afresh after considering the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd. (supra)". Thus, the Tribunal remanded the issue back to the Assessing Officer to be decided in the light of the Special Bench judgment in the case of Reliance Industries Ltd. The Revenue's grievance in this respect is two fold. It was contended that the issue was raised for the first time before the Tribunal and the same should not have been permitted. Secondly, the view of the Tribunal in case of Reliance Industries Ltd. was challenged before the High Court. The High Court in a judgment dated 15.04.2009 in Income Tax Appeal No. 1299 of 2008 had held that no question of law in this respect arises and thereby confirmed the judgment of the Tribunal. It was pointed out that against this judgment of the High Court, the Department had approached the Supreme Court and the Supreme Court had held that a question of law did arise. The Supreme Court framed a question and placed the matter back before the High Court. We are informed that this appeal is still pending.

5. As long as the material exists on record, a contention raised by the assessee for the first time before the Tribunal, cannot be barred. So much is clear from series of judgments of various Courts including of this Court in case of CIT Vs. Pruthvi Brokers and Shareholders P. Ltd. (2012) 349 ITR 336. It is not the case of the Revenue that the assessee in the context of its contention on the nature of the subsidy, desired to produce additional evidence. It is true that the judgment of this Court confirming the order of the Tribunal in case of Reliance Industries Ltd. has been partially reversed by the Supreme Court. A question of M/s. Grasim Industries Ltd., law has been framed and placed for consideration of the 4 of High Court. However, this does not mean that the judgment of the Tribunal as on today stands reversed or stayed. In any case, quite apart from the judgment in the case of Reliance Industries Ltd. of the Special Bench of the Tribunal, it is always been for the assessee to contend before the Assessing Officer by pointing out the relevant clauses of the subsidy that in law the subsidy cannot be treated to be towards revenue account. It would be equally open for the Revenue to oppose such a contention if so advised. The Assessing Officer and the Revenue authorities would have to take a decision in accordance with law. These questions, therefore, are not considered.‖ (emphasis applied by us while placing reliance on the decision of Hon’ble Jurisdictional High Court) 5.4.4. Against this judgement on other issues, the Revenue preferred an SLP before the Hon‟ble Supreme Court and the same was dismissed vide order dated 23/08/2019 in SLP (Civil) Diary No.22929/2019. In other words, the Revenue while preferring SLP before the Hon‟ble Supreme Court did not even challenge this ground of subsidy and the decision of Special Bench of Tribunal in the case of Reliance Industries Ltd., Hence, the order of the Hon‟ble Jurisdictional High Court in assessee‟s own case for A.Y.2001-02 had become final on the very same issue. Though the said decision has been rendered for subsequent assessment year as compared to the years under consideration before us, in view of identical facts and the same legal issue, and more especially, in order to address the fact of binding precedent of Special Bench decision in the case of Reliance Industries Ltd., this Bench deems it fit to place reliance on the said decision also of the Hon‟ble Jurisdictional High Court. Accordingly, we categorically hold that the decision of the Special Bench still holds the field and is a good law. The entire contentions raised by the ld. Special Counsel for the Revenue in this regard are hereby dismissed.

M/s. Grasim Industries Ltd., 5.4.5. Further, we find that the Co-ordinate Bench of Ahmedabad Tribunal in the case of ACIT vs. Genus Electrotech Ltd., reported in 72 taxmann.com 101 had an occasion to consider the fact of Special Bench decision in a more elaborate manner. The relevant operative portion is reproduced hereunder:-

“11. We find that so far as the Special Bench decision of this Tribunal in the case of Reliance Industries Ltd. (supra) is concerned, it still holds the field. All that has happened, as a result of Hon'ble Supreme Court's decision dated 9th September 2011, is that Hon'ble Bombay High Court has now admitted the question "whether, on the facts and circumstances of the case, the Hon'ble Tribunal was right in holding that sales tax exemption was a capital receipt" and will, in due course though, adjudicate on this legal issue. To that extent, Hon'ble Bombay High Court's order dated 15th April 2009, to the extent of declining to admit this question, stands reversed. However, the decision of the Special Bench still holds good as the same has not, and at least not yet, even been examined by Hon'ble Bombay High Court. Mere admission of appeal against a decision, as is elementary, does not affect the biding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Hon'ble Supreme Court, but was directed to be examined, on merits, by Hon'ble Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the coordinate bench was led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is reversed. That is patently incorrect, and when we pointed it out to the learned Commissioner (DR), he did not have much to say except to rely upon the coordinate bench decision which seems to have followed that approach. The coordinate bench, in the case of Jindal Steel & Power Ltd. (supra), did indeed travel much beyond its limited mandate in ignoring a binding judicial precedent simply because appeal against that special bench decision is now pending before Hon'ble Bombay High Court. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, we have no difficulty in recognizing our limitations. The wisdom of a division bench, even if superior- as strenuously argued by the learned Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of our functioning, and we must follow the same. We, therefore, regret our inability to follow the division bench in the case of Jindal Power, no matter how deeply we respect and admire the work of all our colleagues, and we would rather be guided by the special bench decision - which is exactly what another division bench, on the same set of facts as before us, did in the case of Ajanta Manufacturing Ltd. (supra). As for learned Commissioner (DR)'s suggestion that we should follow the jurisdictional High Court decision in the case off Colourman Dyechem Ltd. (supra), we find that Their Lordships, in this case, were dealing with an entirely different type of subsidy which was clearly dealing with an expansion situation. However, we would rather refrain M/s. Grasim Industries Ltd., from making any further detailed observations on this issue, as we are alive to the fact that Hon'ble jurisdictional High Court, in Tax Appeal No 358 of 2012, has admitted appeal against the decision of this Tribunal in Ajanta's Manufacturing Ltd. case (supra) and all these issues will now come up for consideration of Their Lordships. The fact that appeal is admitted does not, as we have stated earlier as well, does not affect the binding nature of the judicial precedents. There is no dispute before us that the scheme under which the sales tax and excise duty subsidy are given to this assessee are the same as in the case of Ajanta Manufacturing Ltd. (supra). All the material facts being the same, there is no reason to take any other view of the matter than the view so taken by the coordinate bench. We must, therefore, uphold the conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries Ltd. (supra) and coordinate bench decision in the case of Ajanta Manufacturing Ltd. (supra), and decline to interfere in the matter.‖ (emphasis supplied by us)

5.4.6. In view of the above, no fault could be attributed on the ld. CIT(A) placing reliance on the decision of the Special Bench of the Tribunal and granting relief to the assessee in the instant case.

5.4.7. We find that the ld. Special Counsel for the Revenue placed heavy reliance on the decision of the Co-ordinate Bench of this Tribunal in the case of Grasim Industries Ltd., (successor to the business of Aditya Birla Nuvo Ltd., formerly known as Indian Rayon and Industries Ltd.,) for A.Yrs. 1995-96 to 1998-99 in 2197/Mum/2014, 2198/Mum/2014 & 7062/Mum/2014 respectively dated 18/04/2018 wherein this Tribunal had held that the issue in dispute with regard to taxability of subsidy could be decided independently without depending upon the decision of the Special Bench in the case of Reliance Industries Ltd. We find that in the said decision, the Tribunal never said that Special Bench decision has been reversed by any higher forum or it is no longer good law. The Bench had simply stated that the issue in dispute would be adjudicated on merits with regard to taxability of subsidy and the Tribunal ultimately gave relief to the assessee on merits M/s. Grasim Industries Ltd., independently by applying purpose test and the decision of the Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., referred to supra. Hence, the reliance placed on this observation of the Tribunal by the ld. Special Counsel for the Revenue is misplaced and does not come to the rescue of the revenue.

5.4.8. We further find that the ld. Special Counsel for the Revenue repeatedly reiterated that the decision of the Hon‟ble Supreme Court in the case of U.P. Rashtriya Chinni vs. State of Uttar Pradesh and Others dated 02/07/1995 reported in 1995 SCC(4) 738 was not cited before the Special Bench of Mumbai Tribunal while rendering the decision in the case of Reliance Industries Ltd., and therefore, the Special Bench decision is non-est and loses its binding precedent. At the outset, we would like to state that UP Rashtraiya Chinni decision was not rendered in the context of Income Tax Act and the taxability of subsidy was not an issue there before the Hon‟ble Supreme Court. We have already stated hereinabove that the decision of the Special Bench of Reliance Industries was never stayed or reversed by any higher judicial forum. Infact even the decision of Hon‟ble Supreme Court in the case of U.P.Rashtriya Chinni supra states that the judgement holds good till it is set aside or its correctness is doubted by the Higher Court. Once the correctness of a judgement is doubted by the Higher Court, the judgement no longer remains the law of the land and is treated as non-est. As stated earlier, nowhere the decision of Special Bench of Mumbai Tribunal in the case of Reliance Industries Ltd had been set aside or its correctness is doubted by the Higher Forum, though it is being reiterated so by the ld. Special Counsel for the Revenue before us. Hence we hold that the ratio laid down in UP Rashtriya Chinni would rather advance the case of the assessee before us. Hence, we categorically hold that the decision of Special Bench of the Tribunal M/s. Grasim Industries Ltd., in the case of Reliance Industries Ltd., referred to supra still holds the field and still has binding precedent.

5.5. With regard to yet another argument advanced by the ld. Special Counsel for the Revenue, on without prejudice basis, that even if the subsidy is treated as capital receipt then the same would have to be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. We find that the provisions of Explanation 10 to Section 43(1) of the Act has been introduced in the statute only from A.Y.1999-2000 onwards. Eventhough we find that the subsidy in the instant case is given to meet the fixed capital investment but the said subsidy is not identifiable with any particular asset as such. When the subsidy or grant received is not identifiable to any particular asset, then the provisions of Explanation 10 to Section 43(1) of the Act would not be applicable. Reliance in this regard is placed on the decision of the Hon‟ble Jurisdictional High Court in the case of PCIT vs. Welspun Steel Ltd., reported in 264 Taxman 252. The relevant question raised before the Hon‟ble Jurisdictional High Court is as under:-

―(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that subsidy cannot be considered as payment directly or indirectly to meet any portion of the actual cost ignoring the fact that if the assessee claims the same as capital receipt, the same shall be reduced from the cost of asset and depreciation claim should be on the net value/cost of the asset after reducing the amount of incentives in terms of Explanation 10 to Section 43(1) of the Act?‖ 5.5.1. This question has been answered by the Hon‟ble Jursidictional High Court in the following manner:- 9. The second question raised by the Revenue is consequent of the first question, in which, the Revenue argues that, if the subsidy is treated as a capital in nature, the same must bring down assessee's costs of acquisition of plant and machinery. The assessee's claim of depreciation to that extent must shrink. Assessee argues that, the Tribunal M/s. Grasim Industries Ltd., correctly held that, the subsidy had not been given in relation to acquisition of plant or machinery and that, therefore, same cannot be adjusted towards cost of acquisition.

M/s. Grasim Industries Ltd., 5.5.2. Respectfully following the same, we hold that the provisions of Explanation 10 to Section 43(1) of the Act would not be applicable in the facts and circumstances of the case and accordingly, the alternative ground raised by the Revenue is hereby dismissed.

5.6. In view of the aforesaid detailed observations, we hold that subsidy / incentive received in the instant case by the assessee for all the years under consideration would have to be construed only as a capital receipt not chargeable to tax and the ld. CIT(A) had rightly granted relief to the assessee in this regard by applying the purpose test. Hence, we do not find any infirmity in the order of the ld. CIT(A) for all the years under consideration. Accordingly, the original grounds as well as the additional grounds raised by the Revenue are dismissed.

Order pronounced on 29/ 04 /2022 by way of proper mentioning in the notice board.