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Facts
The Revenue's appeal pertains to the assessment year 2018-19. The case involves the taxability of receipts from the sale of 'Market Linked Focus Product Scheme' (MLFPS) scrips, which the CPC treated as revenue receipts.
Held
The Tribunal held that the receipts from the sale of MLFPS scrips are capital in nature and not taxable as revenue. The FAA's order was upheld, and the grounds raised by the Revenue were dismissed.
Key Issues
Whether the receipts from the sale of MLFPS scrips are to be treated as capital or revenue receipts, and their consequent taxability.
Sections Cited
250, 143(1), 2(24), 28(iiia), 28(iiib), 28(iiic), 2(24)(xvii), 2(24)(xviii), 21(24)(xviii)
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND MS PADMAVATHY S
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the Department is directed against the order of Addl./JCIT(A)-1, Ahmedabad dated 27.02.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2018-19.
:- 2 -: 2. There is a delay of 16 days in filing this appeal. The AO has filed a petition for condonation of delay supported by an affidavit stating therein the reason for belated for this appeal. We have perused the reason for belated filing of this appeal and we are of the view that there is sufficient cause and no latches can be attributed to the AO. Hence, we condone the delay of 16 days in filing this appeal and proceed to dispose off the appeal on merits.
The grounds raised
by the Revenue read as follows:-
1. The order of the learned Commissioner of Income Tax(Appeals) is against the law in holding that the receipts from sale of MEIS Scrips are capital in nature.
2. The Learned CIT (A) has erred in law following the decision of Hon'ble ITAT in the case of Eastman Exports Global Clothing (P) Ltd. (ITA 47 & 48/Chny/2016), which was reversed in the case of M/s Hyundai Motors India Limited in ITA 31928/Chny/2017subsequently.
4. The Ld CIT (A) has erred in law in not appreciating the provisions of sub-clause (xviii) of section 2(24) of the Income Tax Act, which covers any incentive from any scheme of government within the scope of Income.
5. For these and other grounds, that may be adduced at the time of hearing, the order of the Ld.CIT (A) may be cancelled and that of the Assessing Officer may be restored.
Brief facts of the case are as follows:- The assessee is a firm engaged in the business of manufacture and export of knitted hosiery garments. For the assessment year 2018-19, the return of income was filed by the assessee firm on 31.10.2018 declaring total income of Rs.11,07,27,670/-. The return was processed u/s.143(1) of the Act on 09.02.2020. In the said intimation issued u/s.143(1) of the :- 3 -: Act, the CPC had treated the income from sale of “Market Linked Focus Product Scheme (MLFPS)” scrips amounting to Rs.4,52,22,666/- as revenue receipts and added the same to the total income of the assessee firm.
Aggrieved by the intimation issued u/s.143(1) of the Act, assessee preferred an appeal before the First Appellate Authority (FAA). Before the FAA, the Ld.AR submitted that the CPC has erred in treating the income from sale of scrips (MLFPS) license as revenue receipt by treating the same as export incentive similar to DEPB, Duty Drawback. The assessee before the FAA submitted that the issue is covered in favour of the assessee in assessee’s own case from assessment years 2011-12 to 2013-14 and other judicial pronouncements detailed below:- ii. Hon’ble Madras High Court in the case of CIT v Eastern Seafoods Exports (P.) Ltd. [1995] 215 ITR 64 iii. Hon’ble High Court of Jammu & Kashmir in the case of Shree Balaji Alloys & Ors. V CIT[2011] 333 ITR 335 iv. Hon’ble ITAT, Chennai in the case of M/s Eastman Exports Global Clothing Pvt. Ltd. v. Hon’ble CIT(A), NFAC in the case of K M KNIT WEAR, DIN & Order No : ITBA/NFAC/S/250/2021-22/1037187733(1) vi. Hon’ble ITAT, Chennai in the case of ACIT vs. M/s Eastman Exports Global Clothing Pvt. Ltd. and 326/CHNY/2024 for AY 2017-18 and 2018-19 dated 24.09.2024
The FAA by following the Chennai Bench order of the Tribunal in the case of ACIT vs. Eastman Exports Global Clothing Pvt. Ltd., :- 4 -: reported in [2024] 167 taxmann.com 434 (Chennai – Trib) decided the issue on merits in favour of the assessee. The FAA held that even after the amendment by Finance Act, 2015 w.e.f 01.04.2016 to Section 2(24)(xviii) of the Act, the receipts from sale of MLFPS license will be capital receipt and not taxable. The relevant finding of the FAA on merits read as follows:-
Out of all these decisions the latest decision dated 24.09.2024 in case of Eastman Exports Global Clothing Pvt. Ltd. and others by jurisdictional ITAT, Chennai requires to be taken into consideration. This decision is given after considering detailed arguments and submission form both the sides. The nature of MLF market linked focus product scheme was analyzed. Various decisions given earlier by ITAT and High Courts were referred in this decision. In this decision, it was also verified whether the gain made by the appellant falls under provisions of section 28(iiia), 28(iiib) and 28(iiic) was analyzed. Similarly the provisions of section 2(24)(xvii) were also discussed from the angle whether this amount received by the appellant is subsidy, grant or cash incentive etc., mentioned in this sub section and whether it falls under the definition of income. In addition to this impact of ICDS notified vide dated 31.03.2015 were also discussed. After elaborate discussion and considering decisions regarding subsidy given by Hon’ble Apex court in case of CIT Vs. Ponni sugars and chemical LTD and Sahney Steel and press works LTD and others, the Hon’ble tribunal has concluded that the amount received from sale of MEIS is not taxable as revenue receipt and it is held that the amount received is capital receipt. This decision is rendered by Jurisdictional ITAT which is binding on the undersigned. In view of following decisions I am bound to abide by the decision of Hon’ble ITAT: i. ITO Vs. Siemens India Ltd & 156 ITR 11(BOM) ii. Shree Rajendra Mills Ltd vs CIT 109 ITR 229 iii. Union of India Vs Kamalakshi Finance Corporation Ltd AIR1992SC711
In view of binding judicial discipline explained by above judgments. The Jurisdictional ITAT Chennai, in clear terms has held that the amount received by the appellant is capital receipt and not taxable. Therefore, in view of jurisdictional ITAT decision even after the amendment by Finance :- 5 -: Act, 2016 and notification of ICDS the amount added by AO CPC is deleted. Ground no. 1 & 3 are allowed. AO is directed to reduce the income of the appellant by Rs.45222666/-.
The FAA also held that the CPC is not correct in making above adjustment in the intimation passed u/s.143(1) of the Act for the relevant assessment year, since amendment stating adjustment can be made by increasing by the income, was inserted by Finance Act, 2020 w.e.f. 01.04.2021 and therefore, not applicable for the relevant assessment year.
Aggrieved by the order of the FAA, the Revenue has filed the present appeal before the Tribunal. The Ld.DR relied on the grounds raised.
The Ld.AR on the other hand submitted that the issue in question is squarely covered in favour of the assessee by the order of the Chennai Bench of the Tribunal in the case of Eastman Exports Global Clothing (P.) Ltd., (supra). It was submitted that the said order of the Chennai Bench was followed by the order of Delhi Bench of the Tribunal in the case of Dhanuka Laboratories Ltd., vs. ACIT in (order dated 05.03.2025).
:- 6 -: 10. We have heard rival submissions and perused the material on record. The Revenue has raised solitary issue on merits namely whether the sale of MLFPS receipts is revenue or capital in nature. The Co-ordinate Bench of the Tribunal in the case of ACIT vs. Eastman Exports Global Clothing (P.) Ltd., (supra) after considering the judicial pronouncements and scheme under which the amounts were received by assessee, had held the amount received is a capital receipt. The Tribunal has also considered the amendment brought about by the Finance Act, 2015 to section 2(24)(xviii) of the Act while coming to the aforesaid conclusion. The relevant finding of the Tribunal in the case of Eastman Exports Global Clothing (P.) Ltd., (supra) reads as follows:- 42. On perusal of the above, we note that the question arose for consideration is when the assessee was given incentive for exploring the new markets across the globe, whether such incentive be a capital receipt or revenue receipt. The Tribunal, considering decision of Hon’ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd.(supra) held the incentive given by the Government of India for exploring new market across the globe, is not for running the business but for the expanding the market area, is a capital receipt and cannot be treated as income either under section 2(24) or 28 of the Act. As discussed above, the same finding has been followed by this Tribunal in assessee’s own case for AY 2014-15 & 15- 16, thereby, we summarise our finding in answering the grounds of appeal with reference to the arguments of the ld. DR and ld. AR, that we hold that the decision of Hon’ble High Court of Bombay in the case of Serum Institute of India (P.) Ltd. v. Union of India (supra) is not applicable to the facts on hand as Hon’ble High Court was pleased to decide the question the constitutional validity of insertion of sub-clause (xviii) to sub-section (24) of section 2 of the Act only, but not its Applicability.
43. We hold that as per the Foreign Trade Policy-2015, the benefit given by way of MEIS scrips are rewards, the meaning of which is completely :- 7 -: different from the meaning of the term “assistance” under the provisions of section 2(24)(xviii) of the Act. We hold that the benefit by way of MEIS scrips could not fall within the meaning of the terms “subsidy or grant or cash incentive or duty draw back or waiver or concession or reimbursement provided under section 2(24)(xviii) of the Act. We hold the ICDS-VII is not applicable as it deals with Government grants only, but not inclusive of the duty credit scrips under MEIS, which are rewards. We hold that the benefit under Foreign Trade Policy-2015 received being MEIS scrips cannot fall within the meaning of cash assistance under section 28(iiib) of the Act. We hold the sums received as a sale of MEIS scrips credited to the profit and loss account, the said treatment in the books of accounts by itself cannot be determinative of taxability of said receipt. Thus, the benefit derived by way of sale MEIS scrips in the open market is not an income with the meaning of provisions under section 21(24)(xviii) of the Act. Therefore, we find no infirmity in the order of the ld. CIT(A) for the reasons recorded therein and also for discussion made by us in the aforementioned paragraphs, the grounds raised by the Revenue fails and are dismissed.
11. In light of the aforesaid order of the Chennai Bench of the Tribunal which has considered various judicial pronouncements on the subject and also the amendment brought about to definition of income u/s.2(24) of the Act and have come to a categorical conclusion that amount received on sale of MLFPS scrips is a capital receipt, we hold that the FAA’s order is correct and in accordance to law. Further we notice that Revenue had not raised any ground challenging the finding of the FAA that addition cannot be subject matter of adjustment u/s.143(1) of the Act for the relevant assessment year. For this reason also, we find the appeal filed by the Department will not serve any purpose. For the aforesaid reasoning and relying on the judicial pronouncement cited supra, we reject the grounds raised by the Revenue. It is ordered accordingly.
ITA No.1422/Chny/2025 :- 8 -:
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 1st August, 2025 at Chennai.