DEPUTY COMMISSIONER OF INCOME-TAX vs. M/S. ALKOPLUS PRODUCERS PRIVATE LTD.,, LATUR

आदेश / ORDER

PER R.S.SYAL, VP :

This batch of five appeals comprises of 3 cross appeals

including a cross objection for the assessment year 2011-12 and

two cross appeals for the assessment year 2012-13. Since some of

the issues raised in these appeals are common, we are, therefore,

proceeding to dispose them off by this consolidated order for the

sake of convenience.

A.Y. 2011-12 :

No.1222/PUN/2016) is against the deletion of addition of

Rs.11,29,894/- made by the Assessing Officer (AO) on account of

disallowance of commission payment.

3 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

engaged in the manufacturing of extra neutral alcohol from grain

(jawar). It paid commission of Rs.22,59,788/- to Kasturchand

Raghunath & Sons. On being called upon to substantiate the

payment, the assessee submitted vouchers and bills for the

payment of such commission. The AO observed that some of the

bills were handmade and self-made vouchers and further there

were discrepancies in some vouchers and bills. He made

disallowance at 50% of total commission paid by the assessee,

which resulted into an addition of Rs.11,29,894/-. The ld. CIT(A)

deleted the addition.

material on record, it is observed that the assessee paid

commission of Rs.22.59 lakhs to Kasturchand Raghunath & Sons,

which fact was clearly stated before the AO as has also been

recorded in the assessment order. Not only that, the assessee also

furnished details of commission. The AO proceeded to make an

ad hoc disallowance at 50% of commission without even

endeavoring to verify the genuineness of such payment from

Kasturchand Raghunath & Sons. He simply stated that vouchers

were handmade and there were discrepancies in some vouchers and

4 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

bills. He, however, failed to spell out any such discrepancy in any

of the vouchers produced by the assessee. Under the given

circumstances, we are satisfied that the ld. CIT(A) was justified in

deleting the addition. We, therefore, uphold the same.

deletion of addition on account of interest on interest-free loans.

Briefly stated, the facts of this ground are that the AO observed

during the course of assessment proceedings that the assessee gave

advance of Rs.2,03,05,669 and Rs.62,65,000/- to Vyanjan Hotels

and Indo Sprint respectively, without charging any interest. It was

further found that the assessee did pay interest. The AO made

disallowance at 12% of the loan amount of Rs.2.65 crore, which

resulted into an addition of Rs.31,88,480/-. The ld. CIT(A)

allowed part relief and sent some part of the addition back to the

AO for verification with certain directions. Though the assessee is

also in appeal, but the part of the impugned order challenging the

re-verification by the AO, has not been assailed before the

Tribunal. Thus, to that extent the impugned order has attained

finality.

5 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

heard both the sides. The ld. CIT(A) has categorically recorded

that the assessee did charge interest @9% aggregating to

Rs.4,34,398/- on the advance of Rs.62,65,000/- given to Indo

Sprint. Such an interest was shown as receivable in the books of

account of the assessee. This finding has not been controverted on

behalf of the Revenue. In our considered opinion, no exception

can be taken to the view canvassed by the ld. CIT(A) on this issue

in deleting the addition to this extent.

on Rs.2.03 crore, being advance given to Vyanjan Hotels, it is seen

that the assessee contended before the ld. CIT(A) that this amount

was given for purchase of shares of that company. The assessee

furnished details of the shares which it was intending to purchase.

The ld. CIT(A) restored the issue to the AO and directed him to

find out if shares of the company were allotted to it. If it was

found that the shares were not allotted to the assessee company

after making the payment, then the interest cost would be taken to

shares account and added to their cost of acquisition and in the

otherwise scenario it should be taken as revenue expenditure. We

do not find any grievance on the part of the Revenue in asmuchas

6 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

the ld. CIT(A) has adopted a legally valid view. The ld. AR

submitted that the shares were in fact allotted and the assessee has

no objection if the amount of interest was capitalized. Under the

given circumstances, we countenance the impugned order to this

extent.

addition of Rs.13,76,60,000/- on account of subsidy and ground

no. 1 of the assessee’s appeal is against the direction of the ld.

CIT(A) that the amount of subsidy should be reduced from the cost

of assets in terms of Explanation 10 to section 43(1) of the Income-

tax Act, 1961 (hereinafter also called ` the Act’).

received financial assistance granted by the Government of

Maharashtra to eligible units under the Financial assistance to

Grain Distillery Scheme, 2007. The AO has highlighted the

important features of the scheme in the assessment order. It has

been mentioned that the scheme was brought out to encourage

investments in grain based distilleries in the backward regions of

Maharashtra State. Such subsidy was paid to the assessee in the

form of rebate of Rs.10/- per litre and Excise duty was repaid on

the products supplied. The AO held that the subsidy was revenue

7 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

in nature. The ld. CIT(A) overturned the assessment order on this

point. He, however, held that the amount of subsidy should be

reduced from the cost of assets in view of Explanation 10 to

section 43(1) of the Act. Both the sides are in appeal on their

respective stands.

material on record. It can be seen from the text of the scheme

dated 08-07-200, relevant part of which has been reproduced in the

assessment order that the main purpose of providing financial

assistance under the scheme was : “to encourage investment in

grain based distilleries in the backward regions of the Maharashtra

State”. Once the object of the scheme is to encourage setting up of

new units, the grant has to be held as a capital receipt. This is a

settled legal position which follows from the judgment of the

Hon’ble Supreme Court in CIT Vs. Ponni Sugar and Chemicals

Ltd. (2008) 306 ITR 392 (SC) in which it has been categorically

held that if subsidy is given, inter alia, for expansion, then it is a

capital receipt irrespective of the fact that it is given in any form.

Adverting to the facts of the instant case, we find that the subsidy

was given to the assessee to establish the industrial unit in

backward regions of the Maharashtra State. Even if such subsidy

8 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

was quantifiable in the form of rebate of Rs.10/- per litre on the

Excise duty, but the purpose of its grant, which is to accelerate the

industrial development in grain based distilleries in the backward

regions of the Maharashtra State, does not alter the nature of

subsidy from capital to a revenue receipt. Considering the

mandate of the scheme issued by the Government of Maharashatra,

it becomes clear that the subsidy is a capital receipt not a revenue

receipt. The impugned order is upheld to this extent.

Supreme Court in CIT Vs. P.J. Chemicals (1994) 210 ITR 830 (SC)

held that subsidy received in Central Scheme is a Capital receipt

and the same should not be reduced from the cost of assets for

depreciation. The legislature introduced Explanation 10 to section

43(1) with effect from the assessment year 1999-2000 providing

that subsidy on assets acquired after this date should be reduced

from the cost of asset. The ld. CIT(A) has taken cognizance of

Explanation 10 in directing that the amount of subsidy should be

reduced from the cost of asset. In our considered opinion, the view

so adopted by the ld. CIT(A) is not in accordance with law in

asmuchas this explanation gets activated where the subsidy is

specifically relatable to cost of a particular asset. The language of

9 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

Explanation 10 clearly states that : “where a portion of the cost of

an asset acquired by the assessee has been met directly or

indirectly by the Central Government or a State Government or

any authority established under any law or by any other person, in

the form of a subsidy or grant or reimbursement (by whatever

name called), then, so much of the cost as is relatable to such

subsidy or grant or reimbursement shall not be included in the

actual cost of the asset to the assessee’. Proviso to this Explanation

states that : where such subsidy or grant or reimbursement is of

such nature that it cannot be directly relatable to the asset acquired,

so much of the amount which bears to the total subsidy or

reimbursement or grant the same proportion as such asset bears to

all the assets in respect of or with reference to which the subsidy or

grant or reimbursement is so received, shall not be included in the

actual cost of the asset to the assessee’. On going through the

language of the Explanation 10, it is manifest that it is attracted

only when the object of the Scheme is to subsidize the cost of an

asset and not otherwise. Proviso also refers to `such subsidy’ only.

If the object of the Scheme is to accelerate the industrial

development of the State, then the case is not caught within the

mandate of the Explanation 10. Similar view has been taken by

various benches of the tribunal in several decisions, including

10 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

Sasisri Extractions Ltd. VS. ACIT (2010) 122 ITD 428

(Visakhapatnam). The Mumbai bench of the Tribunal in Godrej

Agrovet Ltd. VS. ACIT in ITA No. 1629/Mum/09 has also taken a

similar view vide its order dated 17.9.2010. Though the

Department preferred an appeal against this Tribunal order, but did

not challenge the finding returned by the Tribunal on this aspect.

Copy of the Tribunal order and the judgment of the Hon’ble

Bombay High Court have been placed on record.

1.4.2016, has enlarged the definition of income given u/s 2(24) by

inserting sub-clause (xviii), which reads as under :-

`(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43;’

that now subsidy given by the Central Government or a State

Government or any authority etc. for any purpose, except

where it is taken into account for determination of the actual

11 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

cost of the asset under Explanation 10 section 43(1), has

become chargeable to tax. Even if a subsidy is given to attract

industrial investment or expansion, which is a otherwise a

capital receipt under the pre-amendment era, shall be treated

as income chargeable to tax, except where it has been taken

into account for determining the actual cost of assets in terms

of Explanation 10 to section 43(1). This amendment is

patently prospective. As the assessment year under

consideration is 2011-12 and the amendment is effective from

assessment year 2016-17, new hold that section 2(24) (xviii)

will have no application. In view of the foregoing discussion,

we are satisfied that the subsidy received by the assessee from

the Government of Maharashtra is a capital receipt and

accordingly not chargeable to tax and at the same time, it is

not liable to be reduced from the cost of assets for the

purposes of depreciation in the year under consideration.

Thus, the ground raised by the Revenue is dismissed and that

of the assessee is allowed.

its appeal.

12 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

impugned order which has become academic in view of our

decision on the appeal filed by the Revenue.

the assessee is allowed; and the cross objection is dismissed as

having become infructuous.

A.Y. 2012-13 :

the direction of the ld. CIT(A) to treat the subsidy received by the

assessee in the instant year from Government of Maharashtra under

Grain Distillery Scheme, as a capital receipt and the assessee is

aggrieved by the decision of the ld.CIT(A) in holding that the

amount of the subsidy should be reduced from the cost of assets for

the purposes of depreciation.

received subsidy of Rs.6,30,40,000/- during the year under the

same scheme as continuing from the preceding year. The AO

treated the amount as of revenue character. The ld. CIT(A) held

the amount to be in the nature of capital receipt but also applied

Explanation 10 to section 43(1).

13 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

material on record. A common submission has been made by both

the sides that the facts and circumstances of the instant appeals are

mutatis mutandis similar to those of the preceding year. Following

the view taken herein above, we uphold the action of the ld.

CIT(A) in treating the subsidy as a capital receipt and overturn his

view on the question of application of Explanation 10 to section

43(1) of the Act to the facts of the instant case.

of cross objection of the assessee is allowed.

Order pronounced in the Open Court on 04th April 2019.

Sd/- Sd/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 04th April, 2019 सतीश

14 M/s. Alkoplus Producers Pvt. Ltd., A.Yrs. 2011-12 and 2012-13

आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. आयकर आयु�(अपील) / The CIT (Appeals)-2, Aurangabad 4. The Pr. CIT-2, Aurangabad िवभागीय �ितिनिध, आयकर अपीलीय 5. अिधकरण, पुणे “B” / DR ‘B’, ITAT, Pune; 6. गाड� फाईल / Guard file. // True copy //

आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 03-04-2019 Sr.PS 2. Draft placed before author 03-04-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *