ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 12, , PUNE vs. UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT LIMITED,, PUNE

The Revenue has raised the following grounds of appeal:-

Despite service of notice, none appeared on behalf of assessee. The matter was adjourned from the previous date wherein the Ld. DR for the Revenue was asked to verify whether the issue stands covered by the orders of Tribunal in earlier years. The Ld. DR for the Revenue has furnished on record the copy of Tribunal order for the assessment year 2012-13, wherein similar issue has been decided in the case of assessee. Accordingly, we proceed to decide the present appeal ex-parte the assessee and after hearing the Ld. DR for the Revenue.

The issue raised in the grounds of appeal No. 1 to 4 is against the order of Commissioner of Income Tax (Appeals) in directing the Assessing Officer to treat the subsidy received of Rs.1,26,09,361/- as capital receipt.

Briefly, in the facts of the case, the assessee had filed return of income declaring total income at Nil. The assessee was engaged in the business of manufacturing of construction machinery and equipment. The assessee was also engaged in trading of spares and machinery. The Assessing Officer had made disallowance under section 36(1)(va) of the Act on account of employee’s contribution to PF and ESIC, being delayed payments. Further, disallowance was made under section 40(a)(ia) of the Act for non-deduction of tax out of Director’s Sitting Fees. Further, the Assessing Officer vide para 6 of assessment order noted the submissions of the assessee that it had inadvertently offered to tax, income of Rs.1.26 crores which was part of the Capital Subsidy and the same be removed from the income offered by the assessee. The Assessing Officer relied on the decision of Hon’ble Supreme Court of India in the case of Goetze (India) Ltd. Vs. Commissioner of Income

Before the Commissioner of Income Tax (Appeals) the first issue which was raised by the assessee was in respect of subsidy received from Government of Maharashtra for setting up a mega unit under the Industrial Promotional Scheme, 2007 and claim of the assessee that the said subsidy was the capital receipt. The assessee pointed that though in the return of income it had offered the amount of subsidy as a revenue receipt, but the same was by an inadvertent mistake and since the subsidy received was a capital receipt, the same should have been excluded while computing the income of the assessee. The Commissioner of Income Tax (Appeals) observed that where the assessee had offered the income in its return of income which was not revised, then in view of the Hon’ble Supreme Court of India in Goetze (India) Ltd. Vs. Commissioner of Income Tax (supra), the Assessing Officer had not accepted the plea of assessee. However, after considering the written submissions filed by the assessee and the utilization of subsidy received under the Package Scheme of Incentives, 2007 and in view of the provisions of section 43 Explanation 10 of the Act, the Commissioner of Income Tax (Appeals) in turn relying on the order for preceding year i.e. assessment year 2013-14 held that the subsidy received by the assessee was a capital subsidy. In this regard reliance was placed on the decision of Pune Bench of the Tribunal in the case of M/s. John Deere Equipments Pvt. Ltd. Vs. Dy. Commissioner of Income Tax in ITA No. 30/PN/2012 and ITA No. 275/PN/2012. The relevant para of the Tribunal is reproduced in para 10 and 11 of the appellate order. The Commissioner of Income Tax (Appeals) thus,

The Revenue is in appeal against the aforesaid directions of Commissioner of Income Tax (Appeals).

We find that similar issue arose before the Tribunal in assessee’s own case in ITA No. 2312/PUN/2016 relating to assessment year 2012-13, vide order dated 03.08.2018 and the Tribunal has allowed the plea of the assessee that the subsidy sanctioned to the assessee under the Package Scheme of Incentives, 2007 of the State Government to the tune of Rs.13.37 crores was against the investment of Rs.26.77 crores in land, factory building, plant and machinery, electrical installation etc. The Tribunal vide para 5 also noted that balance sum of Rs.2.36 crores was receivable as on 31.03.2012. The Tribunal in turn placed reliance on the decision in the case of M/s. John Deere Equipments Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra) and held that the subsidy received by the assessee was capital in nature. During the year under consideration out of the balance due of Rs.2.36 crores, the assessee has received Rs.1.26 crores during the year under consideration and in view of the decision of Tribunal in assessee’s own case in hand in the earlier year the said subsidy is to be treated as capital receipt in the hands of the assessee. Though, the assessee is in the original return of income had included the same in its hand, but the same is to be excluded being not taxable. Accordingly, we uphold the order of Commissioner of Income Tax (Appeals) and dismiss the grounds of appeal No. 1 to 4 raised by the Revenue.

Now, coming to the ground of appeal Nos. 5 to 7 raised by the Revenue which are against the order of Commissioner of Income Tax (Appeals) in allowing the deduction on account of belated payments of employee’s contribution to PF and ESIC amounting to Rs.24,67,486/-. The Revenue is aggrieved since, the Commissioner of Income Tax (Appeals) has not followed the decision of Hon’ble Gujarat High Court.

We find that the issue stands settled by judgment of Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. M/s. Hindustan Organics Chemicals Ltd. vide Income Tax Appeal No. 399 of 2012, dated 11th July, 2014. The Hon’ble High Court has held that the amount towards employee’s contribution to PF and ESIC is to be allowed, in case the same is paid before the due date of filing of return of income. The Commissioner of Income Tax (Appeals) has referred to the aforesaid decision in para 5.4.1 at page 17 of the appellate order. In view of the issue being settled by the Jurisdictional High Court and where the assessee has paid the said amount due on account of employee’s contribution to PF and ESIC before due date of filing of return of income, which is mentioned in the assessment order itself, there is no merit in the grounds of raised by the Revenue in this regard. Being the decision of Jurisdictional High Court, the same is binding upon the assessee and all the other parties working within the jurisdiction of Hon’ble Bombay High Court and hence there is no merit in the plea of Revenue that the Commissioner of Income Tax (Appeals) has not applied the ratio laid down by the Hon’ble Gujarat High Court. Once, the issue stands settled by the Jurisdictional High Court, then judicial proprietary demands that the decision of Jurisdictional High Court be applied in deciding similar issues. Accordingly, we

In the result, the appeal of Revenue is dismissed.