DCIT, CIR-3(1), KOLKATA, KOLKATA vs. M/S TATA METALIKS LTD., KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.439 & 478/Kol/2016 Assessment Year :2010-11 Tata Metaliks Ltd. V/s. Income Tax Officer, Tata Centre, 10th Floor, Ward-3(2), P-7, 43, Chowringhee Road, Chowringhee Square, 4th Floor, Kolkata-69 Kolkata-71 [PAN No.AABCT 1389 B] DCIT, Circle-3(1), Tata Metaliks Ltd. Tat Centre, 10th Floor, P-7, Chowringhee V/s. Square, Aayakar 43, Chowringhee Bhawan, 4th Floor, Room Road, Kolkata-71 No.19, Kolkata-69 .. अपीलाथ� /Appellant ��यथ�/Respondent Shri Nageshwar Rao, Ld. Advocate आवेदक क� ओर से/By Assessee Shri S. Dasgupta, Addl. CIT -DR राज�व क� ओर से/By Respondent 21-02-2018 सुनवाई क� तार�ख/Date of Hearing घोषणा क� तार�ख/Date of Pronouncement 27-04-2018 आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- The assessee as well as Revenue is in cross-appeal against the common order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 06.01.2016. Assessment was framed by ITO Ward-3(2), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his both order dated 01.03.2013 for assessment year 2010-11. Both appeals are heard together and being passed a consolidate order for the sake of convenience.

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 2 Shri Nageshwar Rao, Ld. Advocate appeared on behalf of assessee and Shri S. Dasgupt, Ld. Departmental Representative appeared on behalf of Revenue. First we take up assessee’s appeal in ITA No.439/Kol/2016. 2. The grounds of appeal raised by assessee are reproduced hereunder:- “1. That on the facts and in the circumstances of the case, the disallowance and / or denial of different claims and / or relief made by the Learned Commissioner of Income Tax (Appeals) ‘’Ld. CIT(A)’] has been grossly unjustified,, erroneous and unsustainable and necessary direction be given for appropriate relief in accordance with law. 2(a) That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified rather grossly erred in not allowing deduction in respect of leave encashment of Rs.13,780,734 claimed on provision basis. 2(b) That on the facts and in the circumstances of the case and without prejudice to ground No.2(a) taken here in above, in the unlikely event the claim made by the Appellant is disallowed, then necessary direction may please be given to the Learned Assessing Officer (‘Ld Assessing Officer') to allow deduction for leave encashment on payment basis in the relevant years(s). 3. That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified rather grossly erred in not allowing exclusion of sales tax incentive and state capital investment subsidy availed during the year under consideration amounting to Rs.39,870,574 and Rs.5,975,000 respectively, being capital in nature, in computing book profit u/s 115JB of the Act. 4. That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified and grossly erred in not allowing exclusion of prior period interest on income tax refund of Rs.22,987,154 in computing book profit u/s. 115JB of the Act. 5. That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified rather grossly erred in not allowing exclusion of profit on sale of fixed assets of Rs.61,063 in computing book profit u/s 115JB of the Act. That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified rather grossly erred in not allowing credit for tax of Rs.848,000 paid by way of adjustment of refund for AY 2011-12. 7. That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified rather grossly erred in allowing computation of interest u/s 234C on assessed income rather than on returned income as a result of which excess levy of interest u/s 234C amounted to Rs.829,045 8. That the Appellant craves leave to add, alter, supplements, amend, modify, substitute and / or rescind the grounds hereinabove before or at the time of hearing of this appeal.”

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 3 3. Ground No.1 is general does not call for any adjudication. 4. Next inter-connected issue raised by assessee in ground No.2(a) & 2(b) is that Ld. CIT(A) erred in confirming the disallowance made by the Assessing Officer for ₹1,37,80,734 on account of provision for leave encashment. 5. The assessee in the present case is a limited company and engaged in manufacturing business of pig iron. The assessee, during the year has created a provision for leave encashment for ₹1,37,80,734/- which was not paid by assessee within due date of filing the return of income as specified u/s 139(1) of the Act. Thus, the Assessing Officer was of the view that the deduction on account of provision for leave encashment is not allowable to the assessee in pursuance to the provision of Sec. 43B(f) of the Act. on being confronted, assessee submitted that the impugned issue is covered in favor of assessee by the judgment of Hon'ble jurisdictional High Court in the case of Exide Industries vs. Union of India 292 ITR 470 (Cal), however, AO disregarded the contention of assessee by observing that the judgment of Hon'ble jurisdictional High Court in the case of Exide Industries (supra) was stayed by Hon'ble Supreme Court. Accordingly, AO disallowed the same and added to the total income of assessee. 6. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee submitted before Ld. CIT(A) that the liability on account of leave encashment has accrued to it, therefore, same should be allowed as deduction. The assessee before Ld. CIT(A) relied on the several judgments of Hon'ble Supreme Court and Hon'ble High Courts. However, Ld. CIT(A) disregarded the contention of assessee and confirmed the order of AO by observing as under:- “Decision: It is found that provision for leave encashment is specifically covered by clause (f) of section 43B and deduction for the same can be allowed only on payment basis. Further, the Apex Court vide its Interim order dated 08-09- 2008 and 08-05-2009 against the order of Exide Industries Ltd. (Supra) has allowed the operation of section 43B(f) to continue until further order. Further the issue has already been decided against the appellant by my predecessor in ground no. 7 in the appeal for A.Y. 2005-06, ground no. 2 in appeal for A.Y.

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 4 2006-07, ground no. 2 in appeal for A.Y. 2007-08 and ground no. 3 in appeal for A.Y. 2008-09. It is true that Calcutta High Court had struck down provision of section 43B(f) while deciding the case of Exide Industries vs. Union of India 292 ITR 470 (Cal). However, revenue filed SLP against this order before Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of CIT vs M/s Exide Industries Ltd. in SLP (Civil) . CC 12060/2008 during hearing on 8.9.2008 gave the following order:- Upon hearing counsel the Court made the following order, Issue notice, In the meantime, there shall be slay of the impugned judgment, until further orders " The Hon'ble Supreme Court during the hearing in the same case further on 8.5.2009 held as under:- “ Upon hearing counsel the court made the following order: Delay condoned. Leave granted. Pending hearing and final disposal of the Civil appeal, Department is restrained from recovering penalty - and-interest which has accrued fill dale. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear {hat the assessee would, during the pendency of this Civil appeal, pay tax as if Section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns. " Thus, vide order dated 8.9.2008 in CIT vs. Exide Industries Ltd. Hon'ble Supreme Court had granted stay on the High Court judgment until further order. In the subsequent order date 8.5.2009 in petition for special leave to appeal (Civil) no. 22889/2008, it was directed by Supreme Court that during the pendency of the civil appeal, the assessee would pay tax as if section 438(f) is on the statute book though it would be entitled to make claim in the return. The stay granted earlier has not been vacated. Therefore, the stay granted vide order dated 8.9.2008 remains in force. The contention of the appellant is that stay on order of lower court does not affect its ratio. For this, the appellant has placed reliance upon the certain decisions including that of the Hon'ble ITAT, Kolkata in the case of ITO, Wd- 3(1), Asansol vs MGB Transport in ITA No. 2280/Kol/2011, which incidentally is related to disallowance u/s 40(a)(ia) of the Act. Generally speaking it is true, that stay of an order of lower court affects only the parties of the concerned suit and the stay does not necessarily mean that ratio of the order of lower court does not remain in force. However, the issue under consideration in the case of Exide Industries Ltd. (supra) was the very legality of section 43B(f). Therefore, the stay of Hon'ble High Court order has wider ramification and its scope is not limited only to the parties to the suit. Therefore, the order of High Court in the case of Exide Industries Ltd. (supra) is at present not operational. Rather, the provision of section 43B(f) is to be considered to be in force in view of interim order of Hon'bte Supreme Court. Considering this legal position, with due respect to Hon'ble High Court, I am following the interim order of Hon'ble Supreme Court. In view of the same and the facts mentioned

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 5 in the assessment order, the disallowance of Rs.1,37,80,734/- made by the AO is confirmed. Hence, ground no. 4 taken by the appellant is dismissed.” Aggrieved by this, the assessee has come up in appeal before us.

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 6 and decide accordingly. Hence, this ground of assessee is allowed for statistical purpose.

The assessee claimed that the above receipts are not taxable in the hands of assessee under the normal provision of computation of income. Therefore, same are also eligible for deduction u/s 115JB of the Act. The assessee also submitted that sales tax remission and state capital subsidy was received by it under the West Bengal Incentive Scheme, 2000, which was given to it to achieve industrialization of backward areas as well as to generate employment opportunities. However, the AO observed that there is no provision under the Income Tax Act for allowing deduction on account of capital receipt under the provision of Sec. 115JB of the Act. Accordingly, AO disallowed the claim of assessee and added to the total amount of subsidy received by it while calculating the tax under Minimum Alternate Tax (MAT) provision. 11. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that incentive was received by it on account of sales tax remission of ₹3,98,70,574/- and state capital investment subsidy amounting to ₹59.75 lakh under the West Bengal Incentive Scheme,

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 7 2000. The specific purpose for giving incentive to assessee was to encourage the entrepreneurs to set up new industrialized units and expand the existing units in the backward areas in the state of West Bengal. However, assessee also submitted that the impugned capital receipts do not represent any element of income / profit and therefore neither chargeable to tax under the Income Tax Act nor includible in profit and loss account prepared under part 2nd and part 3rd of Schedule-VI to the Companies Act, 1956 for the purpose of MAT. However, Ld. CIT(A) disregarded the contention of assessee and confirmed the order of AO by observing as under:- “Decision: The order of AO and the detailed submissions made by the appellant has been considered. The appellant has sought to exclude sales tax incentive of Rs.3,98,70,574/- and state capital investment subsidy of Rs.59,75,000/- received by then under West Bengal Incentive Scheme (WBIS), 2000 from computation of book profit under section 115JB of the Act. The Assessing Officer has held that the appellant's claim for exclusion of incentives received does not fall under any of the exclusions provided in Explanation 1 to Section 115JB of the Act. Whereas, the appellant has claimed that sales tax and capital investment subsidies are capital receipt and do not have an element of income or profit and deserve to be excluded from computation of Book profit u/s 115JB. It is undisputed fact that the impugned sales tax incentive of Rs. 3,98,70,574/- and state capital investment subsidy of Rs. 59,75,000/- were admittedly disclosed by the appellant co and included in the net profit determined as per profit and loss account prepared as per Part II and Part III of Schedule VI to the Companies Act. In other words, it is not the case of the assessee that the capital receipts earned by the assessee was not included in the net profit determined as per profit and loss account of the assessee prepared under the Companies Act. As per the audited accounts of the assessee, the statutory auditors have reported that, that in their opinion, the profit and loss account and the balance sheet are in compliance with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, and further reported that the balance sheet and profit and loss account, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted. The appellant has contended that an item without any element of profit or income ,when credited to the profit and loss account prepared under Part-2 & Part III of Schedule IV of the Companies Act, 1956, lays down that' P& L should be made to closely disclose the "working" of the company. Since, in the present case, the subsidy has been credited to P& L a/c, in order to work out the real profit of the company u/s 115JB said amount needs to be deducted, following the decision of the Hon'ble Supreme Court in Apollo Tyres

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 8 (2002) 255 ITR 273 (SC) rw Indo Rama Synthetics (I) Ltd vs CIT(2011) 330 ITR 363(SC). The appellant has also relied upon the judgment in the case of CIT vs Veekaylal Investments CO.(P) Ltd (2001) 249 ITR 597(BOM), although the copy of judgment in this case was not furnished. The reliance on the decision by the Hon'ble Mumbai High Court by the appellant is found to be misplaced, it was observed by the Hon'ble High Court that, "The important thing to be noted is that while calculating the total income under the Income Tax Act, the assessee is required to take into account income by way of capital gains under section 45 of the Income Tax Act. In the circumstances, one fails to understand as to how in computing the book profits under the Companies Act, the assessee Company cannot consider capital gains for the purposes of computing book profits under section 115J of the Act. Further, under clause (2) of Part II of Schedule VI to the Companies Act where a Company receives the amount on account of surrender of leasehold rights, the Company is bound to disclose in the profit and loss account the said amount as non-recurring transaction or a transaction of an exceptional nature Irrespective of its nature i.e. whether capital or revenue." Hence, it is not a case of the assessee that the impugned capital receipts was not includible in the profit and loss account prepared in terms of Schedule VI to the Companies Act. Only in the computation of book profit under section 115JB of the Act, the assessee claimed exclusion of sales tax incentive and S.C.I subsidy as capital receipts. In the circumstances, when the appellant has itself included the impugned sales tax incentive and capital investment subsidy in the P&L, the same cannot be excluded under any of the Explanations under section 115JB. The proviso to section 115JB prescribes that the accounting policies, accounting standards and the method and rates of depreciation adopted for preparing the Book Profits under section 115JB shall be the same as adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting. Therefore, whatever accounting policy was adopted for the purpose of preparing the P&L laid before the company should be adopted for computing, 600k Profits under section 115JB. The sales tax incentive and Capital Investment Subsidy were included in computing the profits presented before the shareholders and the A.O has held that the same should also be included in computing Book Profits under section 115JB. It is well settled that the adjustments to the profit and loss account of the company can be carried out only in accordance with the provisions set out in the Explanation to section 115J. This is in view of the definition of 'book profit' as given in the Explanation to section 115JB, the net profit as shown in the profit and loss account, in the relevant previous year, can only be adjusted i.e., increased or reduced, as the case may be, by reference to heads referred in clauses (a) to (ha) and clauses (i) to (iv) of the Explanation to section 115JB. It is found from findings of fact on record that the assessee admittedly, had itself credited the amounts of S.T subsidy and state investment subsidy to the profit and loss account which was duly certified by the auditors ,in view thereof the A.O correctly held that no adjustment could be made subsequently for computation of MAT profits by reducing the impugned receipts from the 'book profit' for the purpose of 115JB of the Act.

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 9 It is the case of the assessee that since these impugned receipts are in the nature of capital, receipts, it was contended that the same shall not be charged to tax and as such the same should be reduced from the net profit determined in the profit and loss account prepared by the assessee' while computing "book profit" within the meaning of section 15JB of the Act. The A.R of the appellant has contended that the provisions contained in sub- section (5) of section 115JB of the Act that since all other provisions of this Act shall also apply to every assessee, being a company, mentioned in section 115JB of the Act, the assessee is entitled to reduce these receipts as exempted under normal provisions of the Act. For this proposition the assessee relied on various judgments. The provisions of sections 115J, 115JA and 115JB of the Act are all deeming provisions. Section 115JB has overriding effect over all other provisions of the Act. Section 115JA and 115JB have also overriding effect over all other provisions of the Act to the extent of the matter provided in these sections. Sub-section (4) was inserted in section 115JA of the Act. A provision similar to sub-section (4) of section 115JA was not there in section 115J of the Act. Sub- section (4) of section 115JA reads as "save as otherwise provided in this section, all other provisions of the Act shall apply". It is, thus, clear that all other provisions of the Act shall apply but subject to the provisions otherwise provided in section 115JA of the Act. In other words, the provisions specifically provided in section 115JA shall have overriding effect over all other provisions of the Act. The provision for computing book profit by increasing or reducing the net profit as shown in the profit and loss account prepared in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act is specifically provided in section 115J or 115JA or 11SJ6 itself as the case may be, and consequently all other 'provisions of the Act providing the manner of computation of total Income under the normal provisions of the Act cannot be applied while computing book profit under 'section '115J or 115JA or 115JB, as the case may be. We do not find any difference between section 115J or 115JA or 115JB in so far as method of computation of book profit as provided in the Explanation appended thereto is concerned. The Tribunal in the case of Frigsales (India) Ltd. (2005) 4 SOT 376 (MUM) has not applied the ratio of the decision of the Supreme Court in the case of Apollo Tyres Ltd. v. CIT[2002] 255 ITR 273/122 Taxman 562. But the fact remains that the propositions laid down by the hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) have been reiterated and relied upon by the Supreme Court in the case of CIT v. HCL Comnet Systems & Services Ltd. [2008] 305 ITR 409/174 Taxman 118 which has been rendered in the context of section 115JA of the Act. As per sub-section (5) of section 115JB of the Act, which reads as "save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section". Having regard to expression "save as otherwise provided in this section" used in this sub-section (5) of section 115JB of the Act, we are of the considered opinion that the expression "save as otherwise provided in this section 115JB" clearly means that what is provided in section 115JB should be religiously followed and anything over and above the matter provided in section 115JB will be subject to other provisions of the Act. The provisions of section 115JB have an overriding effect upon other

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 10 provisions of the Act as is evident from the section itself. Thus, the method of computation of book profit provided in the Explanation to section 115JB should be strictly followed while computing the book profit and the normal provisions of computation of profit under any head of the Act shall not be applicable. The A.R of the appellant has also relied upon the judgment of the Hon'ble Jaipur Tribunal in the case of ACIT Vs Shree Cement Ltd (2012-TIOL-02- ITAT- Jaipur) for its claim that the "Hon'ble Tribunal after discussing the issue at length has held that Sales Tax incentive needs to be excluded in computing Book Profit u/s 115JB since the same is in the nature of a capital receipt not liable for tax. However, it is observed that in the citation on para 52, relied upon by the appellant the ratio decidendi of the decision by the Jaipur Tribunal is not available in the judgement, as the Tribunal has followed its judgement for the preceding Assessment Year. It is well settled that it is only the ratio decidendi, which has a binding effect as an authority. Hence, I respectfully disagree with the said judgement cited by the appellant, .However, the issue is found to be clarified by the decision of the Hyderabad Special Bench of the Tribunal in the case of Rain commodities Ltd (2010) 41 DTR 449, which is applicable to the issue. It is found that the Special Bench of the Tribunal in the aforementioned decision has held as under(short notes): "It is settled law that Assessing Officer has the power to alter the net profit. In the following two cases, the Assessing Officer can rewrite the P&L a/c i.e. to say that Assessing Officer should recalculate the net profit and then follow the adjustments of MAT as usual: (1) If it is discovered that P&L a/c is not drawn up in accordance with Parts II and III of Sch.VI to the Companies Act. However, the Assessing Officer cannot disturb the net profit as shown by the assessee where there are no such allegations, fraud or misrepresentation but only a difference of opinion as to whether a particular amount should be properly shown in the P&L a/c or in the balance sheet, (2) If accounting policies, Accounting Standards aren't adopted for preparing such accounts and method, rates of deprecation which have been incorrectly adopted for preparation of P&L a/c laid before the annual general meeting. Except for the above two cases, the AO has no power to alter the net profit shown by the companies for the purpose of computing the book profit. Thus, it is clear that under MAT, the Assessing Officer should take the net profit as computed by the assessee and then make the adjustments under sec. 115JB. The moot question that needs to be decided is whether Parts IT and II of Sch. VI to the Companies Act permit the exclusion of the capital gain from the P&L Account or not? In other words, can a P&L A/c drawn up without considering the capital gain said to be in accordance with the provisions of Parts II and II of Sch. VI to the Companies Act or not?" It was accordingly held that in the absence of any provision for exclusion of exempted capital gain in the computation of book profit under the provisions contained in Explanation to section 115JB of the Act, the assessee is not entitled to the exclusion thereof as claimed. Thus, the argument that impugned capital receipts are to be reduced from the net profit shown in the profit and loss account prepared under the Companies Act for the purpose of computing book profit under section 115JB of the Act is

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 11 not tenable. If such reduction is allowed from the net profit determined in the profit and loss account for the purpose of computing "book profit" under section 115JB of the Act, the same would certainly be against the above referred decisions laid down by the honourable Supreme Court in the case of Apollo Tyres Ltd. (supra) and HCL Comnet Systems & Services Ltd. (supra) wherein the powers of the Assessing Officer while computing the book profits for the purpose of section 115J or 115JA were limited as discussed above. From the above, it is difficult to conclude that the Division Bench of Bombay High Court in this case has overruled the decision of another Division Bench without even a line of discussion. The decision of the Bombay High Court in the case of Veekaylal Investment Co. (P.) Ltd. 249 ITR 597 , holding that the book profits have to be computed in accordance with Parts II and III of Schedule VI to the Companies Act. This is in conformity with the decision of the Apex Court in the case of Apollo Tyres Ltd. (supra). The Mumbai High Court in the case of Akshay Textiles Trading & Agencies (P.) Ltd. (supra) has held that there is no question of law in view of the decision of the Apex Court in the case of Apollo Tyres Ltd. (supra). From this it is not inferred that the decision of the Bombay High Court in the case of Veekaylal Investment Co. (P.) Ltd. (supra), is no longer good law. Therefore, this case does not help the assessee. Therefore, the A.O has rightly held that only permissible adjustments as provided for in Explanatoin-1 to sec. 115JB are to be made ,as held by the hon'ble Karnataka High Court in N.J.Jose & Co. v. Asstt. CIT [2010] 321 ITR 132(KER) that no further deductions and allowances other than stipulated in Explanation 1 are available. The Honourable Apex Court on the interpretation of provisions has held in the case of Vodafone International Holdings B.V. vs. Union of India reported in [2012J 17 taxmann.com 202 (Se) as follows:- "71 We have to give effect to the language of the section when it is unambiguous and admits of no doubt regarding its interpretation, particularly when a legal fiction is embedded in that section. A legal fiction has a limited scope. A legal fiction cannot be expanded by giving purposive interpretation particularly if the result of such interpretation is to transform the concept of chargeability which is also there in Section 9(1) (i), particularly when one reads Section 9(1)(i) with Section 5(2) (b) of the Act. What is contended on behalf of the Revenue is that under Section 9(1) (i) it can "look through" the transfer of shares of a foreign company holding shares in an Indian company and treat the transfer of shares of the foreign company as equivalent to the transfer of the shares of the Indian company on the premise that Section 9(1)(i) covers direct and indirect transfers of capital assets" ... The language of the section is unambiguous and there is no doubt regarding its interpretation particularly when there is specific mechanism provided in sec.115JB, which is a code in itself for computation of deemed income of MAT companies. The exclusion of the impugned capital receipts sought by the appellant is not tenable by giving purposive interpretation particularly since such interpretation is to transform the concept of Book profit for the purpose of section 115JB of the Act. On the contrary, the sections which

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 12 impose the charge or levy, should be strictly construed and this position though was reiterated by the Apex Court in CIT v. Mahaliram Ramjidas [1940] 8 ITR 442; and subsequently by the Supreme Court in (PC) India United Mills Ltd. v. CEPT[1955] 27 ITR 20 in the case of India United Mills and thereafter the various other judgments, still prevails as the correct law. The entire mechanism for the computation of book profit is clearly set out in sub-section (1) of section 115JB read with Explanation thereto. The starting point being the net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act but also the items, which are to-be increased as stipulated in clauses (a) to (h), and the items, which are to be reduced as specified in clauses (i) to (vii), find specific mention in the scheme of the section itself. Hence, the computation of book profit, and permissible adjustments are to be done strictly as per the Explanation-1 to section 115JB of the Act and therefore, no assistance from any other section of the Act can be taken for that purpose. The decisions of the Hon'ble Supreme Court in the cases of Apollo Tyres Ltd. (supra) and HCL Comnet Systems & Services Ltd. (supra) had clearly laid down a law that the Assessing Officer has only limited power of making increases and reductions to the net profit shown in the profit and loss account except as provided for in the Explanation to section 115J or 115JA of the Act. In view of the above discussions, it is clear that the Assessing Officer, while computing the book profit of a company under section 115J of the Act, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having being properly maintained in accordance with the Companies Act, and the Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to section 115JB of the Act. These receipts in question are not covered by any of the clauses (1) to (vii) of Explanation 1 to section 115JB of the Act and thus cannot be reduced from book profits u/s. 115JB of the Act. The finding by the A.O denying the exclusion of impugned sales tax incentive of Rs. 3,98,70,574/- and state capital investment subsidy of Rs. 59,75,000/- is confirmed. This ground of appeal is dismissed.” The assessee being aggrieved by this order of Ld. CIT(A) came in second appeal before us. 12. Ld. AR for the assessee submitted that the co-ordinate Bench of this Tribunal in the case of Sicpa India (P) Ltd./ vs. DCIT (2017) 80 taxmann.com 87 (Kolkat-Trib) after considering the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (20102) 255 ITR 273/122 taxman 562 has decided the issue in favour of assessee. The ld. AR in support of assessee’s claim also relied on the judgment of Hon'ble Supreme Court in the

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 13 case of CIT vs.Chaphal Kar Brothers, Pune reported in 400 ITR 279 (SC). He requested the Bench to decide the issue on merit. On the other hand, Ld. DR supported the order of Authorities Below. 13. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. From the foregoing discussion, we note that subsidy was given by the Govt. of West Bengal for the purpose of enabling the entrepreneurs to establish new industry and also expand the existing industries. Under normal computation of income the subsidy given to promote the industries are not subject to tax, therefore, an item which is not taxable cannot be brought to tax under the provision of MAT. In holding so, we rely on the order of this co-ordinate Bench of this Tribunal in the case of Sicpa India (P) Ltd. (supra) wherein it was held as under:- “22. We have heard the submission of the learned counsel for the Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec.115JB of the Act have to be looked at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee, being a company, the income- tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April,2001, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of Sec.115JB of the Act were applicable. Every assessee, being a company, shall, for the purposes of section 115JB of the Act, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). In so preparing its book of accounts including profit and loss account, the company shall adopt the same accounting policies, accounting stand and method and rates for calculating depreciation as is adopted while preparing its accounts that are laid before the company at its annual general meeting in accordance with provisions of Sec.210 of the Companies Act. Explanation below Sec.115JB of the Act provides that for the purposes of section 115JB of the Act, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- section (2), as increased by— certain items debited in the profit and loss account in arriving at the net profit and as reduced by- certain items that are credited in the profit and loss account. In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in accordance with Companies Act, 1956

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 14 and make additions or subtraction as is given in the explanation to Sec.115JB(2) of the Act. 23. We have already seen that the issue whether subsidies in question can be regarded as income at all is no longer res integra and has been concluded by the Hon'ble Jammu & Kashmir High Court in the case of Balaji Alloys (supra). In the aforesaid decision the Hon'ble J & K High Court on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of income. 24. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Dy. CIT v. Binani Industries Ltd. [2016] 178 TTJ 658 : had to deal with a case where the question was as to whether receipts on account of forfeiture of share warrants amounting to Rs. 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon'ble Apex Court in case of Indo Rama Synthetics (I) Ltd. v. CIT [2011] 330 ITR 336/9 taxmann.com 25, Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. v. Dy. CIT [2010] 40 SOT 265 (Hyd.) (SB), ITAT Luknow Bench in the case of ACIT v. L.H. Sugar Factory Ltd. and vice versa in ITA Nos. 417 , 418 & 339/LKW/2013 dated 9.2.2016 and decision of Mumbai ITAT in the case of Shivalik Venture (P.) Ltd. v. Dy. CIT [2015] 70 SOT 92/60 taxmann.com 314, came to the conclusions (i) the object of Minimum Alternate Tax (MAT) provisions incorporated in Sec.115JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company. (ii) Inclusion of receipt which are not in the nature of income in computation of book profits for MAT would defeat two fundamental principles, it would levy tax on receipt which was not in nature of income at all and secondly it would not result in arriving at real working results of company. Real working result could be arrived at only after excluding this receipt which had been credited to P&L a/c and not otherwise. (iii) There was a disclosure of the factum of forfeiture of share warrants amounting to Rs. 12,65,75,000/- by the Assessee in its notes on accounts vide Note No. 6 to Schedule 11 of Financial Statements for year ended 31.3.2009. Profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, included notes on accounts thereon and accordingly in order to determine real profit of Assessee, adjustment need to be made to disclosures made in notes on accounts forming part of profit and loss account of Assessee. Profits arrived after such adjustment, should be considered for purpose of computation of book profits u/s 115JB of the Act and thereafter, AO had to make adjustments for additions/deletions contemplated in Explanation to section 115JB of the Act. 25. The Tribunal in the aforesaid decision made a reference to the decision of the Special Bench of the ITAT in the case of Rain Commodities (supra) which in turn was based on the ratio laid down in the decision of the Hon'ble

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 15 Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable but was exempt under a specific provision of the Act and but for the exemption, the income would be chargeable to tax and such items of income should also be included as part of the book profits. But where a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of L.H. Sugar Factory Ltd. (supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture (P.) Ltd. (supra) which was a case where the question was whether profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income" u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: '26. We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term "income" as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as "incomes not included in total income" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation 1 to sec.115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of "income" at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in "book profit" u/s 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point.' 26. The admitted factual and legal position in the present case is that subsidies in question is not in the nature of income. Therefore they cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that the subsidies in question should be

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 16 excluded for the purpose of determination of book profits u/s.115JB of the Act. We hold accordingly and dismiss Gr.No.2 raised by the Revenue.” Similarly, we further find that Hon'ble Supreme Court in the case of Chaphas Kar Brother Pune (supra) has decided the issue in favour of assessee. The relevant extract is reproduced below:- “27. Since the subsidy scheme in the West Bengal case is similar to the scheme in the Maharashtra case being to encourage development of Multiplex Theatre Complexes which are capital intensive in nature, and since the subsidy scheme in that case is also similar to the Maharashtra cases, in that the amount of entertainment tax collected was to be retained by the new Multiplex Theatre Complexes for a period not exceeding four years, we are of the view that West Bengal cases must follow the judgment that has been just delivered in the Maharashtra case.” The undisputed fact is that the incentive received by assessee is not in the nature of income earned during the course of business. Therefore, in our considered view, same cannot be regarded as “income” for the purpose of MAT u/s 115JB of the Act. Thus, the amount of incentive received by assessee should be excluded from the determination of book profit under the provision of Section 115JB of the Act. Thus, we reverse the order of Ld. CIT(A). and direct the AO to delete the same. This ground of assessee’s appeal is allowed.

At the time of hearing, Ld. AR did not press this ground, thus this ground of assessee is dismissed as not pressed.

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 17 sale of fixed asset is not chargeable to tax while computing the book profit u/s 115JB of the Act. However, the AO was of the view that profit earned on sale of fixed asset should be taken into consideration while determining the book profit u/s 115JB of the Act after having reliance on the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra). Thus, AO included the amount of profit on sale of fixed asset for ₹61,063/- to the book profit as specified u/s 115JB of the Act. 17. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of AO by observing as under:- “Decision: Having carefully perused the submission made by the appellant during the course of hearing, appellant’s contention is that the profit derived from sale of fixed assets are profits realize on capital assets in their hands, and thus could not be part of the profit & loss account in accordance with the provision of Pats II & III of Schedule VI to the Companies Act, 1956. It was averred by the appellant that the capital profit on sale of fixed assets have been excluded from the computation of book profit. T has relied upon principle laid down by the Hon'ble Tribunal in ACIT v. Northern India Theatres Ltd. (1996) 133 CTR 326 (Del) and Sutlej Cotton Mills Ltd. vs. Asst. CIT (1993) 45 ITD 22 (Cal) (SB). Further, the appellant’s AR has also placed reliance upon judgement in Oswal Agro Mills Ltd. v DCIT (1994) 51 ITD 447 (Del), it was held that short term capital gains made on sale of government securities is not required to be treated as part of book profit because only business income is required to be computed in book profit. The facts of the appellant’s case are different as the issue is profit from sale of assets and the decision is prior to the judgment of the Apex Court in the case of Apollo Typre 255 ITR 273 (SC), wherein it was held that the AO has limited powers of adjustment to book profit to the extent provided in section 115JB. The appellant has also placed reliance upon the case laws in ITO v. Frigsales (India) Ltd. (2005)4 SOT 376 (Mum), ITO v. Suraj Jewellary (2008) 21 SOT 79 (Mum), CIT v. India Discounts Company Ltd. (1970) 75 ITR 191 (SC), CIT v. M/s Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (Hon'ble Supreme Court) and Sutlej Cotton Mills v. CIT [1979] 116 ITR 1 (SC) After careful consideration, it is found that facts of the appellant’s case are different from those in the case of laws cited. The appellant has itself credited the income to the audited profit and loss account, prepared in accordance with part II and III of Schedule VI to the Companies Act, which was certified as having been prepared correctly

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 18 as per the said provisions. Therefore, the reliance upon these judgments is misplaced as regardless of the nature of income as revenue or capital receipt, income from sale of fixed assets is not an item specified for adjustment or reduction from net profit for computation of ‘Book profit’ under Explanation 1 to section 115JB of the Act. for the reasons discussed in detail in para 8 above and in view of the decision of the Hon'ble Supreme Court Apllo Tyres (2002) in 255 ITR 273 (SC), wherein it was held that book profits prepared by the Company in accordance with the Companies Act cannot be interfered with by the AO and only permissible adjustments specified in Explanatiion-1 to section 115JB are to be made for the computation of ‘Book profit’ as penalty ratio of Kerala High Court’s judgment in N.J. Jose & Co. v. Asstt. CIT [2010] 321 ITR 132.Therefore, in view of the above discussion, the finding of the AO in denying exclusion of the income from sale of fixed assets of Rs.60,000/- is sustained. This ground of appeal is dismissed.” Aggrieved by the above finding of Ld. CIT(A) the assessee is in appeal before the Tribunal. 18. We have already dealt with this issue elaborately while adjudicating the inter-connected ground of appeal of assessee in para-9 to 13 of this order. Since we have allowed those grounds of assessee, therefore following the same analogy we also allow this ground of assessee.

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 19 Aggrieved by the above finding of Ld. CIT(A) the assessee is in appeal before the Tribunal. The Ld. AR before us prayed to give necessary direction to AO to provide the credit of taxes paid by way of adjustment refund pertaining to AY 2011-12. On the other hand, Ld. DR raised no objection if any direction is issued for giving credit for the adjustment of refund during the year against pertaining to AY 2011-12. 22. After hearing both the parties, we direct AO to allow the credit of refund pertaining to AY 2011-12 adjusted against the demand for the year under consideration as per the provision of law. In terms of above direction, this ground of assessee is allowed for statistical purpose.

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 20 27. In the result, assessee’s appeal is allowed partly for statistical purpose. Coming to Revenue’s appeal in ITA No.478/Kol/2016. 28. Grounds raised by Revenue is reproduced hereunder:- “01. Whether on the facts and in the circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of sales tax subsidy which had been granted under the scheme for achieving industrialization and employment generation and was not an incentive on capital account 02. Whether on the act and in the circumstances of the case, the Ld. CIT(A) erred in relying on the decision of Hon'ble High Court at Calcutta which had decided the taxabilit9y of subsidy received for expansion of capacity, modernization and marketing capabilities, all on capital account. 03. The appellant craves leave to amend, modify or alter any grounds of appeal during the course of hearing of this case.” 29. Solitary issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by AO for ₹3,98,574/- only on account of sales tax subsidy under normal computation of income. 30. The sales tax subsidy received by the assessee was added to the total income of the assessee. But the Ld. CIT(A) after considering the submission of assessee deleted the addition made by AO by observing as under:- “1.0 The findings of the AO and written submissions of the appellant and the documents in records have been carefully considered. The issue is found to be covered by the order of the jurisdictional High Court in the case of CIT vs. Rasoj Ltd. (2011) 335 ITR 438 (Cal), wherein it was held that sales tax incentives received under West Bengal Incentive Scheme for expansion of capacities, modernization and improving the marketing capabilities to tide over the crises for promotion of industry in the state was capital in nature. Moreover, it is found that identical issue was decided favourably by the CIT(Appeals) in the appellant’s own case for AY 2003-04, 2004-05 and 2005-06, which was confirmed by the Hon'ble ITAT vide combined order in ITA No.752/Kol/2008 for AY 2004-05 & ITA No.785/Kol/2008 for AY 2003- 04 dated 23-10-2009. Respectfully following the judgement of the jurisdictional ITAT, which is found to be squarely applicable to the impugned issue, I direct the AO to delete the addition made under this head and ground No.2 taken by the ape is allowed.”

ITA No.439 & 478/Kol/2016 A.Y 2010-11 Tata Metaliks Ltd. Vs DCIT Cir.3(1)/ITO Wd.3(2), Kol. Page 21 The Revenue, being aggrieved by this order of Ld. CIT(A) is in appeal before us. 31. Before us both parties relied on the order of Authorities Below as favorable to them. 32. We have heard rival contentions of both the parties and perused the material available on record. We have already dealt with this issue elaborately while adjudicating the inter-connected ground of appeal of assessee in para-9 to 13 of this order. Since we have allowed those grounds of assessee, therefore following the same analogy we dismiss this ground of appeal filed by the Revenue. 33. In the result, Revenue’s appeal is dismissed. 34. To sum up, appeal of assessee in (ITA No439/Kol/2016) is partly allowed for statistical purpose and that of Revenue in (ITA No.478/Kol/2016) is dismissed. Order pronounced in the open court 27/04/2018 Sd/- Sd/- (�या'यक सद�य) (लेखा सद�य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S )दनांकः- 27/04/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-M/s Tata Metliks Ltd., Tata Centre, 10th Floor, Kolkata-71 2. राज�व/Revenue-DCIT, Cir;3(1)/ITO Wd.3(2) P-7, Chowringhee Sq. 4th Fl, Kolkata-69 3. संबं4धत आयकर आयु5त / Concerned CIT Kolkata 4. आयकर आयु5त- अपील / CIT (A) Kolkata 5. 8वभागीय �'त'न4ध, आयकर अपील�य अ4धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड= फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ4धकरण, कोलकाता ।