ACIT CC-6(1), MUMBAI, BKC, MUMBAI vs. PRISM JOHNSON LIMITED , MUMBAI

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ITA 5685/MUM/2024Status: DisposedITAT Mumbai17 December 2024AY 2010-1117 pages
AI SummaryN/A

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, ruling that the sales tax/VAT subsidy and carbon credit income were capital receipts, referencing previous decisions in the assessee's own case and various High Court judgments. For the 80IA deduction, the Tribunal found no fault in the assessee's 'savings approach' for determining the market value of services from the captive rail system, considering relevant Supreme Court precedents.

What were the facts?

The revenue challenged the CIT(A)'s order treating sales tax/VAT subsidy of Rs. 15.02 Crores and income from carbon credit sales of Rs. 1.14 Crores as capital receipts for AY 2010-11, arguing they were revenue receipts. Additionally, the revenue disputed the assessee's use of a 'savings approach' for calculating income for deduction under Section 80IA for a captive rail system, contending it inflated revenue and deduction claims.

What were the issues?

1. Whether sales tax/VAT subsidy is a capital or revenue receipt. 2. Whether income from the sale of carbon credits is a capital or revenue receipt. 3. Whether the 'savings approach' is a valid method for determining market value of services for 80IA deduction for a captive rail system.

Which sections of the Income-tax Act were involved?

Section 80IA,Section 80IA(4)(i),Section 80IA(8),Section 80A(6),Section 80-IB,Section 43,Section 43A

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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI

Before: SMT. BEENA PILLAI, HONBLE

For Appellant: Shri Vijay Mehta, A/R
Hearing: 12/12/2024Pronounced: 17/12/2024

PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the revenue is preferred against the order of the ld. CIT(A)-54, Mumbai, dated 19/08/2024, pertaining to AY 2010-11. 2. The grievance of the revenue reads as under:- “Ground I) "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in considering the Sales Tax/ VAT subsidy received by the assessee as a capital receipt without appreciating that the subsidy received by the assessee is purely linked to production of goods and not to capital expenditure undertaken by the assessee?" Ground II) "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in considering the Sales Tax/ VAT subsidy received by the assessee as a capital receipt without appreciating that if the subsidy does not fulfil the purpose of sharing the burden of the capital outlay but instead enables the assessee to recoup its profits in a recurring fashion, it must be treated as a revenue receipt." Ground III) "Whether, on the facts and in the circumstances of the case and in law, the Id. CIT(A) is justified in considering the income received on account of sale of the Carbon Credit by the assessee as a capital receipt without appreciating that the income received by the assessee is purely linked to production of goods and not to capital expenditure undertaken by the assessee." Ground IV) Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in considering the saving approach is appropriate basis for determination of market value of services for computation of 80-IA deduction without appreciating that the assessee has calculated its revenue from the rail system as the difference between the cost of transporting the same goods by road and by the India Railways, however, the assessee has actually not transported goods by road and this is an estimation basis." Ground V) "The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be."

3.

In the first round of litigation, the additional ground relating to sales tax subsidy, income from receipt of sale of carbon credit, were admitted and since the authorities below have not gone into the details and verification of the documents, this additional ground was set aside to the file of the AO for adjudication in terms of law.

4.

Pursuant to the directions of the Tribunal, the AO examined the claim of sales tax subsidy of Rs.15.02 Crores, availed during the year under consideration and treated as a capital receipt. The assessee claimed the said subsidy as capital receipt applying the purpose test laid down in Commissioner of Income-tax, Madras v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392 (SC) and Sahney Steel and Press Works Ltd and Others vs.- CIT (1997) 228 /TR 253 (SC), which did not find favour with the AO who was of the opinion that receipt of sales tax subsidy after the commencement of production, clearly provides a running support to the assessee to run the unit, therefore, has to be treated as a revenue receipt.

4.1.

Insofar as, the issue of whether income from sale of carbon credit of Rs.1.14 Crores, should be treated as capital receipt as claimed by the assessee, the AO was of the opinion that carbon credits are earned by the assessee as a result of adopting environment friendly production methods and hence it arises from the business activity of the assessee and is then traded for further revenue. The AO treated the same as a revenue receipt. Since the carbon credits are interlinked with the business and they are an offshoot of business activity and are a tradable commodity, hence income from sale of carbon credit of Rs.1.14 Crores was treated as a revenue receipt.

4.2.

Both these additions were challenged before the ld. CIT(A) and it was strongly contented that the Tribunal in assessee's own case for AYs 2011-12 & 2012-13 has decided the issues in favour of the assessee and against the revenue. The ld. CIT(A) was convinced with the contention of the assessee and directed the AO to treat both the Sales Tax subsidy and the receipt from carbon credit as capital expenditure.

5.

We find that the aforementioned quarrel has been decided by this Tribunal in ITA Nos. 804 & 805/Mum/2018 for AYs 2012-13 & 2011-12 in favour of the assessee and against the revenue.

6.

Insofar as the Sales Tax subsidy is concerned, the Co-ordinate Bench has considered the same vide Ground No. 3(a) & 3(b) in its order (supra) and held as follows:- "

50.

Considered the rival submission of both Ld. Counsels on this issue and material placed on record, we notice that Coordinate Bench of ITAT in the case ACIT v. Mihir Packaging (ITA No.5629/Mum/2011) and in the case of John Deere India Pvt. Ltd v. ITO (ITA No. 828/Pun/2014) has already decided this issue in detail. For the sake of clarity, relevant portion of the decision of Mihir Pacakging case is reproduced below:-

14.

We have carefully considered the rival contentions,perused the findings given by the authorities below andthe material available on record. It is an undisputed fact that the assessee has established a small scale industries undertaking in a duly notified backward area in the District of Thane, which has been categorized as “D+” locality i.e., remote backward area for the purpose of new Package Scheme of Incentive, 1993. The preamble of the said scheme, reads as under:- “In order to achieve dispersal of industries outside the Bombay- ThanePune belt and to attract them to, the underdeveloped and developing areasof the State, Government has been giving a Package of Incentives to New/Expansion Units setup in the developing region of the State since1964 under a Scheme popularly known as the Package Scheme of Incentives. The Package Scheme of Incentives, introduced in 1964, was amended from time to time. The last amended Scheme, commonly known as the 1988 Scheme was operative from 1st October 1988 to 30th September, 1993. The question of revising the 1988 Scheme to rationalise the scope of incentives, various scales and mode of release of incentives to intensify and accelerate the process of dispersal of industries from the developed areas and for development of the under- developed regions of the State, particularly those farther away from the Bombay- ThanePune belt, had been under consideration of the Government. In the light of the experience gained in implementation of the earlier Schemes, particularly the 1988 Scheme, and in the changed circumstance of the liberalised industrial policy ofthe Government of India, and with a view to achieving the objectives outlined above, the Government has decided to revise the 1988 Scheme and bring into force a New Scheme, viz., the Package Scheme of Incentives, 1993 (hereinafter referred to as “the 1993 Scheme")."

15.

Under the said scheme, one of the eligible unit in terms of clause 1.1 were the industries falling withinthe purview of small scale industries board and the implementing agency for the purpose of the scheme in case of small scale industries unit was “District Industries Centre

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