GATES WEARS,TIRUPPUR vs. DCIT CIRCLE 1, TIRUPPUR

आयकर अपीलीय अिधकरण, ’सी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी एस.एस. िव�ने� रिव, �ाियक सद� एवं �ी जगदीश, लेखा सद� के सम� । Before Shri S.S. Viswanethra Ravi, Judicial Member & Shri Jagadish, Accountant Member आयकर अपील सं./I.T.A. Nos.3326/Chny/2019 & 326/Chny/2024 िनधा�रण वष�/Assessment Years: 2017-18 & 2018-19 The Assistant Commissioner of Vs. Eastman Exports Global Clothing (P) Ltd., No. 10, 12, 2nd Street, Kumar Income Tax, Circle 1(1), 121, Adams Buildings, 60 Feet Road, Nagar South, Tirupur 641 603. Tirupur 641 602. [PAN: AACCC0952E] (अपीलाथ�/Appellant) (��थ�/Respondent) आयकर अपील सं./I.T.A. No.706/Chny/2022 िनधा�रण वष�/Assessment Year: 2017-18 Victus Dyeings, The Assistant Commissioner of 410, P.N. Road, R.K. Nagar, Income Tax, Circle 1, Vs. Tirupur 641 601. Tirupur. [PAN: AACFV4420D] (अपीलाथ�/Appellant) (��थ�/Respondent) आयकर अपील सं./I.T.A. No.768/Chny/2022 िनधा�रण वष�/Assessment Year: 2017-18 The Deputy Commissioner of M/s. K.M. Knit Wear, Income Tax, Circle 1, 14, E.F. Lakshmi Nagar, First Street, Vs. Tirupur. City Garden, Tirupur 641 602. [PAN: AACFK3053B] (अपीलाथ�/Appellant) (��थ�/Respondent) आयकर अपील सं./I.T.A. No.358/Chny/2022 िनधा�रण वष�/Assessment Year: 2018-19 M/s. K.M. Knit Wear, The Assistant Commissioner of 14, E.F. Lakshmi Nagar, First Street, Income Tax, Circle 1, Vs. City Garden, Tirupur 641 602. Tirupur. (अपीलाथ�/Appellant) (��थ�/Respondent)

2 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23

आयकर अपील सं./I.T.A. No.94/Chny/2023 िनधा�रण वष�/Assessment Year: 2017-18 San Tex Inc., The Assistant Commissioner of 8/1230-A, Vigneshwara Street, Income Tax, Circle 1, Vs. Mumoorthi Nagar, Pooluvapatti (Post), Tirupur. P.N. Road, Tirupur 641 602. [PAN: ABNFS9161N] (अपीलाथ�/Appellant) (��थ�/Respondent) आयकर अपील सं./I.T.A. No.1348/Chny/2023 िनधा�रण वष�/Assessment Year: 2017-18 Geena Garments The Assistant Commissioner of S.F. No. 410, R.K. Nagar, P.N. Road, Income Tax, Circle 1, Vs. Tirupur 641 602. Tirupur. [PAN: AAGFG6962K] (अपीलाथ�/Appellant) (��थ�/Respondent) आयकर अपील सं./I.T.A. No.1014/Chny/2024 िनधा�रण वष�/Assessment Year: 2020-21 Gates Wears, The Deputy Commissioner of 362/3-A, Pudupalayam, Kangeyam Road, Income Tax, Circle 1, Vs. Nachipalayam Post, Vijayapuram Via, Tirupur. Tirupur 641 606. [PAN:AACFG4006G (अपीलाथ�/Appellant) (��थ�/Respondent) Department by : Shri S. Palanikumar, CIT & Mrs. R. Anita, Addl. CIT Assessee by : Shri T. Banusekar, Advocate सुनवाई की तारीख/ Date of hearing : 06.08.2024 घोषणा की तारीख /Date of Pronouncement : 20.09.2024 आदेश /O R D E R PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER: This bunch of eight appeals filed by the Department as well as different assessees are directed against different orders passed by the ld. Commissioner of Income Tax (Appeals), Coimbatore-3, Coimbatore, for the assessment years 2017-18, 2018-19 and 2020-21.

3 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 2. Since, the issues raised in these appeals are similar based on the same identical facts, with the consent of both the parties, we proceed to hear all the appeals together and pass consolidated order for the sake of convenience.

I.T.A. No. 3326/Chny/2019 for AY 2017-18

4 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 5. Brief facts emanating from the record are that the assessee is a private limited company, engaged in the business of manufacture and export of knitted hosiery garments and generation and sale of power through wind mill. The assessee filed return of income declaring total income of ₹.8,99,90,600/-. The assessee paid tax on book profit as tax computation is being higher than the normal computation. The said return was processed under section 143(1) of the Act. Thereafter, under scrutiny, notice under section 143(2) of the Act issued, the assessee furnished details as called for. Considering the said details, the Assessing Officer made additions on account of denying exemption under Market Linked Focus Products Scheme [MLFPS] licence, disallowance of amount spent on lease-hold land and disallowance on weighted deduction under section 35(2AB) of the Act, accordingly, the Assessing Officer determined the income of the assessee at ₹.36,61,77,500/- vide order dated 04.07.2019 passed under section 143(3) of the Act.

5 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 7. As aggrieved by the same, the Revenue is in appeal before us by raising grounds concerning which are reproduced hereinabove.

6 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 ITAT in assessee’s own case for the assessment years 2011-12 & 2012- 13. The Assessing Officer, considering the said explanation, held that the income from sale of MLFPS licences are similar to DEPB, duty drawback, etc. are in revenue filed assessable under the head “profits and gains from business. The ld. DR drew our attention to para 7 of the impugned order and submits that the ld. CIT(A) held the said incentive received from the Government as a capital receipt by placing reliance on the order of the Tribunal in assessee’s own case in ITA Nos. 47 & 48/Mds/2016 dated 17.05.2016 for AY 2011-12 and 2012-13. The ld. DR submits that the Appellant-Revenue did not agree with the reasoning given by the ITAT, Chennai Bench and preferred an appeal before the Hon’ble High Court of Madras under section 260A of the Act. He submits that the said appeals are pending for hearing along with AYs 2014-15 and 2015-16 before the Hon’ble High Court of Madras.

7 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 argued that the said Coordinate Bench held the finding of the ITAT in the present assessee’s own case for AY 2011-12 & 2012-13 in ITA No. 47 & 48/Chny/2016 is not applicable.

8 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 Policy [FTP] for the period 2015-20. The said MEIS, he submits, was launched as an incentive scheme for the export of goods and replaced various export incentive schemes, which gave different types of duty credit scrips including MLFPS. He vehemently argued MEIS intends to incentives exports of goods manufactured in India or produced in India and placed on record the details of MLFPS, submits the eligibility being exporters of selected products to select countries w.e.f. 01.05.2013 and drew our attention to various products of Market Linked Focus Product Scheme [MLFPS] for export made.

9 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 Standards (ICDS) for any class of assessees or for any class of income. The CBDT notified ICDS-I to ICDS-X vide notification dated 31.03.2015 after wide public consultations. He argued that in order avoid future litigation and controversy in this matter, the definition of income under sub-section (24) of section 2 of the Act has been amended so as to provide that the income shall include 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 of the Act. He argued that the said amendment came into effect from 01.04.2016 and would accordingly apply to assessment year 2016-17 and subsequent assessment years. He vehemently argued that the present AY being 2017-18, the said amendment is applicable to the assessee. Further, he argued that since the MLFPS is an incentive directly falling under (xviii) of section 2(24) of the Act, is an income chargeable to tax.

10 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 of India [2023] 157 taxmann.com 107 (Bombay) and argued that the Serum Institute challenged the constitutional validity of impugned sub- clause (xviii) of section 2(24) of the Act in treating all concession given in general form for whatever purposes and objectives, as income. He drew our attention to para 43 of the said judgement and argued that the Hon’ble High Court of Bombay held the amendment to section 2(24) by insertion of sub-cause (xviii) is a perfect example of a legislative endeavour to align the definition of ‘income’ with the evolving economic landscapes and judicial precedent of it being an inclusive and elastic term, by holding so, dismissed the Writ Petition. He summarised his arguments by saying that the claim of the assessee is hit by insertion of sub-clause (xviii) of section 2(24) of the Act and therefore, the incentive given under MFLPS is an income chargeable to tax, prayed to restore the order of the Assessing Officer.

11 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 Ltd. v. ACIT (supra), as relied on by the ld. DR and submits that the Division Bench of ITAT cannot override another Division Bench as it can only distinguish to hold whether it is applicable or not. He referred to the findings of the Tribunal in para 34 and argued that the Coordinate Bench did not distinguish the facts and circumstances of the case to hold why it is not considered. The finding of the Coordinate Bench in stating the facts therein are different from the facts in the case of PCIT v. Nitin Spinners Ltd. in ITA No. 31 of 2019 of Hon’ble High Court of Rajasthan, is also not correct. He referred to para 8 of the said judgement and submits that the question before the Hon’ble High Court was regarding Focus Marketing Scheme [“FMS” in short], which is similar to the fact of scheme before the Tribunal in the case of Hyundai Motor India Ltd. v. ACIT (supra). Therefore, the Bench in holding the facts and circumstances in the case of Hyundai Motor India Ltd. v. ACIT (supra) and in the case of Nitin Spinners Ltd. (supra) are different, is not correct. Further, he argued that the Hon’ble High Court of Rajasthan upheld the order of the ITAT in holding that the subsidy granted by Central Government to enhance Indian export potential in the international market is not an export incentive, but, rather capital receipt, therefore, not taxable. Further, he referred to consolidated order of this Tribunal in assessee’s own case for AY 2014-15 & 2015-16 at page 131 of the paper book and submits that

12 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 this Tribunal, by following the decision of the Hon’ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. Reported in 306 ITR 392 and also in the case of PCIT v. Nitin Spinners Ltd. (supra), held that the incentives provided to the industrial unit with the object of creating avenues for perpetual employment, to eradicate the social problem of unemployment in the State by accelerated industrial development, would be capital in nature. Further, he drew our attention to para 10 and argued that the Coordinate bench held the finding rendered by another Coordinate bench in the case of Hyundai Motor India Ltd. v. ACIT (supra) is not applicable to facts on hand as facts thereon are distinguishable.

13 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 were given in the present case in order to overcome infrastructural inefficiencies and associated costs involved and to provide exporters a level playing field. He referred to all the items provided in sub-clause (xviii) of section 2(24) of the Act and drew our attention to page 5 and submits that the ‘grant’ is a sum of money given by the Government or public body for a particular purpose. Further, he referred to page 6 of the paper book and submits the definition of ‘subsidy’ is a sum of money granted from public funds to help an industry or business to keep the price of a commodity or service low. He referred to page 8 of the paper book and submits that the definition of ‘assistance’ is that the provision of money, resources, or information to help someone and drew our attention to the decision of the Hon’ble Supreme Court in the case of Lokmat Newspaper Pvt. Ltd v Shankar Prasad AIR 1999 SC 2423. He referred to page 36 of the paper book and argued when particular words pertaining to a class, category or genus are followed by general words, the general words are construed as limited to things of the same kind as those specified. In this regard he referred to maxim ‘ejusdem generis’, which means ‘of the same kind or nature’. He submits the said maxim ‘ejusdem generis’ serves to restrict the meaning a general word, to things or matters of the same genus, as the preceding particular words. He argued the term “assistance” is to be understood as a sum granted to an

14 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 assessee as a help for the said assessee. The term “reward” is not finding place in section 2(24)(xviii) of the Act and one can see that section 2(24)(xviii) of the Act does not contemplate within its scope a reward which was otherwise granted in recognition of a service rendered. Further, the words “by whatever name called” are used in section 2(24)(xviii) of the Act followed by the words subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement has to be read ‘ejusdem generis’ with the words subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement. He summarised that the assessee is in receipt of reward in the form of MEIS licences and such licences are completely different from “assistance” and by applying the words by “whatever name called” as having to be read ‘ejusdem generis’ with the term assistance, the same cannot mean that a reward is governed by section 2(24(xviii) of the Act as the term reward is completely different from the term “assistance” and by the principles of ‘ejusdem generis’ cannot be understood as meaning that the term “assistance” can also include a reward. He strongly placed reliance in the case of Municipal Corporation of Greater Bombay v. Bharat Petroleum Corporation Ltd. [2002] 4 SCC 219 at page 45 of the paper book and in the case of Grasim Industries Ltd. v. Collector of Customs [2002] 4 SCC 297 at page 54 of the paper book. Further, he

15 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 referred to order dated 15.06.2023 passed by the Amritsar Bench of ITAT in the case of ACIT v. Gravita Metal Inc. in ITA No. 594/Asr/2019 dated 15.06.2023 and argued that the Tribunal held that exemption from excise duty do not fall in the definition of income as envisaged under section 2(24)(xviii) of the Act by holding so, a capital receipt not taxable under the provisions of the Income Tax Act. He referred to para 19 of the said order at page 80 of the paper book.

16 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 17. Heard both the parties and perused the materials available on record. The ld. CIT-DR, Shri S. Palanikumar vehemently contended that the Hon’ble High Court of Bombay in the case of Serum Institute of India (P.) Ltd. v. Union of India (supra) clearly held the subsidy and concession are fall under the definition of income as provided in the amendment to section 2(24) by insertion of sub-clause (xviii) by Finance Act, 2015. Therefore, we have to consider as to whether in the present case, the sale of MFLPS scrips granted by the Government of India under Foreign Trade Policy-2015 is revenue receipt or otherwise. In this regard, the ld. DR drew our attention to para 10 and 43 of the decision of the Hon’ble High Court of Bombay (supra), for better understanding, para 10 and para 41, 42 & 43 are reproduced below: 10 Petitioner is challenging the constitutional validity of the impugned sub- clause (xviii) of Section 2(24) of the Act whereby all incentives given in whichever form by the Government and with whatever purpose of objective are to be treated as income, irrespective of the fact as to whether or not the same is in the nature of capital assistance and or revenue assistance. XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 41 Matters of economic policy should be best left to the wisdom of the legislature. In the context of a changed economic scenario the expertise of the people dealing with the subject should not be lightly interfered with. While dealing with economic legislation, this court would interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all. The case of petitioner certainly does not fall within this exception. We also do not find that by inserting the impugned sub clause

17 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 there is any perversity or gross disparity resulting in clear or hostile discrimination. 42 As noted earlier it is trite that the legislature is the best forum to weigh different problems in the fiscal domain and form policies to address the same including to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to new regulatory measures. In the very nature of taxing statutes, legislature holds the power to frame laws to plug in specific leakages. The mere fact that the institution of tax by virtue of the impugned sub clause falls more heavily on petitioner cannot result in its invalidity. 43. In light of the above, in our view, the amendment to section 2(24) by the insertion of sub-cause (xviii) of the Finance Act, 2015, is a perfect example of a legislative endeavour to align the definition of "income" with the evolving economic landscapes and judicial precedent of it being an inclusive and elastic term. The submissions of petitioner though appear to be of fiscal concern were, in our view, more an argument of diminished profits and a narrow interpretation of income which the Apex Court has time and again expanded. The submissions of petitioner fall short of appreciating the overarching legislative intent to foster a comprehensive and equitable taxation regime. The amendment to Section 2(24) by insertion of the impugned sub-clause that includes various subsidies and concessions only indicates the well established jurisprudential path ensuring that the income tax laws remain attuned to the economic realities and continue to serve as a vital cog in the nation's fiscal machinery. As submitted by ASG, it is the duty of the legislature to ensure that taxation policy reflects a balance between incentivizing economic activity and ensuring the equitable distribution of fiscal resources. 44 In our view, there is no merit in the petition. Petition dismissed. 18. On careful reading of para 10 above, we note that the assessee/ petitioner therein challenged the constitutional validity of impugned sub- clause (xviii) to section 2(24) of the Act, whereby, contending all incentives given in whichever form by the Government and with whatever purpose of objective are to be treated as income, irrespective of the fact as to whether or not the same is in the nature of capital assistance and or revenue assistance, which clearly establishes that the assessee/petitioner

18 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 therein challenged constitutional validity of the insertion of sub-clause (xviii) to section 2(24) of the Act. Further, on careful reading of paras 41 and 43, the Hon’ble High Court was pleased to observe that there is no perversity or gross disparity resulting in clear or hostile discrimination by inserting impugned sub-clause and held the amendment to section 2(24) by insertion of the sub-clause (xviii) through Finance Act, 2015, is a perfect example of a legislative endeavour to align the definition of “income” with the evolving economic landscapes and judicial precedent of it being an inclusive and elastic term. Further, observed, amendment to section 2(24) by insertion of the impugned sub-clause that includes various subsidies and concessions only indicates the well established jurisprudential path ensuring that the income tax laws remain attuned to the economic realities and continue to serve as a vital cog in the nation’s fiscal machinery. Therefore, in our opinion, there was no adjudication nor law laid down by the Hon’ble High Court of Bombay with regard to the applicability of words or items as contemplated in sub-clause (xviii) to section 2(24) of the Act, thus, we do not find force in the arguments of the ld. DR that the Hon’ble High Court of Bombay was pleased to hold all incentives given in general form by the Government for whatever purpose or objective are to be treated, as income.

19 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 19. We find the orders of this Tribunal in assessee’s own case for AYs 2011-12, 2012-13, 2013-14, 2016-17, 2014-15 and 2015-16 are at pages 112 to 147 of the assessee’s paper book. The consolidated order for AY 2011-12 & 2012-13 at page 112 of the paper book, on perusal of the relevant part at page 118 in para 9, we note that a question arose for consideration before the Tribunal that when the assessee was given incentive for exploring the new markets across the globe, whether such incentive would be a capital receipt or revenue receipt? The Tribunal followed the decision of the Hon’ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. 306 ITR 392, held the incentives provided by the Government of India for exploring the new markets across the globe and given to the assessee is not for running the business profitably but for expanding the market area, is a capital receipt, cannot be treated as income either under section 2(24) or section 28 of the Act. Further, the same finding was followed in AYs 2014-15 and 2015-16 vide order dated 10.02.2023 in assessee’s own case, which is at page 131 of the paper book. Thus, it is clear the Coordinate Benches held the incentive given by Government for exploring new market area, is a capital receipt, cannot be charged to tax either under section 2(24) or 28 of the Act.

20 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 20. Further, the ld. DR placed reliance in the case of Hyundai Motor India Ltd. V. ACIT (supra) and drew our attention to para 34 of the said order and argued that the ITAT Chennai Bench observed that the facts are not appraised in right perspective of law in the case of Eastman Exports Global Clothing Pvt. Ltd. (assessee before us), and held that the said judgement of the Chennai Bench is not considered. Further, it was also held that the facts in the case of PCIT v. Nitin Spinners Ltd. (supra) are different from the facts in the case of Hyundai Motor India Ltd. V. ACIT (supra) and thereby, not considered.

21 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 market. The Hon’ble High Court observed that the said subsidy was not granted to meet the cost of expenditure to meet the competition of the Indian textile market and was pleased to upheld the order of the ITAT in holding the said amount was not an incentive, but is capital receipt and therefore, not taxable by placing reliance in the case of Ponni Sugars & Chemicals Ltd. (supra).

22 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23

23 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 income from house property and profits and gains of profession. If we refer to sub-clause (iiia) of section 28 of the Act, which explains profits on sale of a license granted under the Import (Control) order, in our opinion, is not applicable in the facts and circumstances of the case. Further, sub- clause (iiib) of section 28 of the Act provides cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India. We find force in the argument of the ld. AR that there was no cash assistance granted to the assessee in the present case, thus, it is not applicable. Further, sub- clause (iiic), explains any duty of customs or excise re-paid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, is in our opinion, not applicable. Further, sub-clause (iiid) and (iiie) explains any profit on the transfer of the Duty Entitlement Pass Book scheme and any profit on the transfer of the Duty Free Replenishment Certificate respectively, admittedly, do not cover the facts and circumstances of the case, so, not applicable.

24 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 and section 56 of the Act. On examination of the said provisions, we find the reasoning of the Assessing Officer in treating the sale of MLFPS as business income. In this regard, we shall examine as to whether the sale of scrips of MLFPS would fall under the provisions of section 2(24)(xviii) of the Act. We note that export from India, schemes are brought under Chapter 3 of Foreign Trade Policy between 01.04.2015 to 31.03.2020, which are placed on record at page 2 of the paper book by the ld. AR and reproduced relevant position herein below: Chapter 3 EXPORTS FROM INDIA SCHEMES 3.00 Objective The objective of schemes under this chapter is to provide rewards to exporters to offset infrastructural inefficiencies and associated costs involved and to provide exporters a level playing field. 3.01 Exports from India Schemes There shall be following two schemes for exports of Merchandise and Services respectively: (i) Merchandise Exports from India Scheme (MEIS) (ii) Service Export from India Scheme (SEIS) 3.02 Nature of Rewards Duty Credit Scrips shall be granted as rewards under MEIS and SEIS. The Duty Credit Scrips and goods imported/domestically procured against them shall be freely transferable. The Duty Credit Scrips can be used for: (i) Payment of Customs Duties for import of inputs or goods, except items listed in Appendix 3A. (ii) Payment of excise duties on domestic procurement of inputs or goods, including capital goods as per DoR notification.

25 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23

(iii) Payment of service tax on procurement of services as per DoR notification. (iv) Payment of Customs Duty and fee as per paragraphci 3.18 of this Policy. Merchandise Exports from India Scheme (MEIS) 3.03 Objective Objective of Merchandise Exports from India Scheme (MEIS) is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, which are produced/manufactured in India, especially those having high export intensity, employment potential and thereby enhancing India’s export competitiveness. 3.04 Entitlement under MEIS Exports of notified goods/products with ITC(HS) code, to notified markets as listed in Appendix 3B, shall be rewarded under MEIS. Appendix 3B also lists the rate(s) of reward on various notified products [ITC(HS) code wise]. The basis of calculation of reward would be on realised FOB value of exports in free foreign exchange, or on FOB value of exports as given in the Shipping Bills in free foreign exchange, whichever is less, unless otherwise specified. 3.05 Export of goods through courier or foreign post offices using e- Commerce (i) Exports of goods through courier or foreign post office using e- commerce, as notified in Appendix 3C, of FOB value upto Rs.25000 per consignment shall be entitled for rewards under MEIS. (ii) If the value of exports using e-commerce platform is more than Rs.25000 per consignment then MEIS reward would be limited to FOB value of Rs.25000 only. 26. The ld. AR argued that MEIS granted under Foreign Trade Policy is a reward as explained in the objective above to provide exporters a level playing field to offset infrastructural inefficiencies and associated costs involved therein. We find, admittedly, the assessee is an exporter falling

26 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 under 3.01 (i) Merchandise Exports from India Scheme (MEIS) concerning the reward as explained in Chapter 3 regarding objective of schemes provided to exporters.

27 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 the Central Government or a State Government, as the case may be.] 28. On plain reading of the above provisions, we note that the definition of income is provided under many sub-clauses to sub-section (24) of section 2 of the act,. The definition of income under sub-clause (xviii) includes assistance in the form of “subsidy” or “grant” or “cash incentives” or “duty drawback” or “waiver” or “concession” or “reimbursement” (by whatever name called) from Central Government or state Government or any authority or body or agency in cash or kind. In the present case, we find no “subsidy” or “grant” or “cash incentives” or “duty drawback” or “waiver” or “concession” or “reimbursement”. The assessee got only reward for MEIS scheme under Foreign Trade Policy-2015 for a level playing field.

28 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 imported urea, indigenous & imported P & K fertilizers, SSP including freight subsidy, reimbursement of freight, insurance charges, custom duty, handing charges, etc. With regard to the term “grant” in reference to section 2(24)(xviii) of the Act means, it is a sum of money given to a business or individual by the Government to support them in implementing or establishing the ideas or projects that ultimately contribute to societal development. The grantee is expected to use the funds from the grant for the stated purposes. “Cash incentive” means any incentive received in cash and as its name indicates, a cash incentive has a clear monetary value being granted to motivate employees/company(s) to achieve the target/ company's overall revenue, etc. The term “reimbursement” means any expenditure which has been incurred by the assessee is being given back to the assessee. Since the expenditure would have been met in cash, the reimbursement of the same would also be in cash. As per Central Board of Indirect Taxes and Customs, “duty drawback” is a trusted and time-tested scheme administered by CBIC to promote exports. It rebates the incidence of Customs and Central Excise duties, chargeable on imported and excisable material respectively when used as inputs for goods to be exported. This WTO compliant scheme ensures that exports are zero-rated and do not carry the burden of the specific taxes. So duty drawback can either be in cash or in kind granted

29 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 by the Board. “Waiver” or “Concession” falls under the category of discount on any amounts payable or paid. Therefore, we find the word and expressions by way of subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement made in sub-clause (xviii) of section 2(24) of the Acyt does not attract the facts of the present case.

30 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 followed by general words, the general words are construed as limited to things of the same kind as those specified”. Further, the Hon’ble Supreme Court in the case of Municipal Corporation of Greater Bombay v. Bharat Petroleum Corporation Ltd. [2002] 4 SCC 219, has observed as under: “............ The principle underlying ejusdem generis is applied when the statutory provisions concerned contain an enumeration of specific words, the subject of enumeration thereby constituting a class or category but which class or category is not exhausted at the same time by the enumeration and the general term follows the enumeration with no specific indication of any different legislative intention. The Hon’ble Supreme Court in the case of Grasim Industries Ltd. v. Collector of Customs [2002] 4 SCC 297, has held as under: “In the background of what has been urged by the assessee it has to be further seen whether the principles of ejusdem generis have application. The rule is applicable when particular words pertaining to a class, category or genus are followed by general words. In such a case the general words are construed as limited to things of the same kind as those specified..........” 31. On careful reading of the above judgements along with written note of the ld. AR, we note that the meaning of an unclear or ambiguous word or phrase can be determined by the words surrounding it and the words surrounding the words “by whatever name called” are the words subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement. Therefore, in our opinion, that the words “by whatever name called” only qualifies the words “subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement” and not the word “assistance”. As canvassed by the ld. AR, we note that the principle of ejusdem generis focuses on interpreting a general term in a list based on specific accompanying terms, taking support from the decision of

31 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 Hon’ble Supreme Court in the case of Lokmat Newspaper Pvt. Ltd. v. Shankar Prasad (supra), Municipal Corporation of Greater Bombay v. Bharat Petroleum Corporation Ltd. (supra) and Grasim Industries Ltd. v. Collector of Customs (supra), in our opinion, the words “by whatever name called” do not expand the scope of the word “assistance”, but, only expands the scope of the words “subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement”. We thus, hold that the word “assistance” is independent of the words “by whatever name called” and words “by whatever name called” are not qualifying the word “assistance”. By applying the same finding, let us see the difference between the words “reward” and “assistance”. As per the note given by the ld. AR, the term “reward” is defined as a “thing given in recognition of service, efforts or achievement”, whereas, the term “assistance” is defined as the provision of money, resources or information to help someone, thus, we find a “reward” is granted in a recognition of services, an assistance is given to someone as a help, but not in recognition of a service rendered. Therefore, in our opinion, there is a clear difference between the words “reward” and “assistance”, thus, we hold the “reward” as in the Foreign Trade Policy – 2015 and the “assistance” as found in the provisions under section 2(24)(xviii) of the Act are different from each

32 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 other, the “reward” does not fall within the definition of sub-clause (xviii) of sub-section (24) of section 2 of the Act.

33 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 under the head “Profits and gains of business or profession” or “income from other sources”. In case of any conflict between the provisions of the Income Tax Act and the ICDS, the provisions of the Act shall prevail to the extent. We find this ICDS deals with the treatment of Government grants. The Government grants are sometimes called by other names such as subsidies, cash incentives, duty drawbacks, waiver, concessions, reimbursements, etc. We find the treatment of Government grants at page 12 & 13 of the paper book, which is reproduced herein below for better understanding: Treatment of Government Grants 5. Where the Government grant relates to a depreciable fixed assets or assets of a person, the grant shall be deducted from the actual cost of the asset or assets concerned or from the written down value of block of assets to which concerned asset or assets belonged to.

34 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23

35 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 let us reproduce point No. 3.03 of Foreign Trade Policy – 2015 at page 3 of the paper book: 3.03 Objective Objective of Merchandise Exports from India Scheme (MEIS) is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, which are produced/manufactured in India, especially those having high export intensity, employment potential and thereby enhancing India’s export competitiveness. 35. The above point 3.03 clearly shows the objective of Merchandise Exports from India Scheme (MEIS) is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, which are produced/manufactured in India, especially those having high export intensity, employment potential and thereby enhancing India’s export competitiveness.

36 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 under the Foreign Trade Policy-2015 by way of MEIS scrips is given as a percentage of turnover cannot make the same as a revenue receipt, moreover, the manner of determining the benefit by itself cannot change the character of a capital receipt into a revenue receipt when the said benefit is not falling within the meaning under the provisions of section 2(24)(xviii) of the Act. In this regard, we refer to the decision of Hon’ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. & ors. (supra), which held that the purpose test is determination of whether a benefit under a Government policy is income or otherwise, the relevant portion of which is reproduced herein below for better understanding: 5. That matter concerns the 1980 Scheme. The dispute pertains to Assessment Year 1986-87. In this matter both the above questions arises for determination. The incentives conferred under that Scheme were twofold. First, in the nature of a higher free sale sugar quota and second, in allowing the manufacturer to collect excise duty on the sale price of the free sale sugar in excess of the normal quota, but pay to the Government only the excise duty payable on the price of levy sugar. In that connection, we quote clause 7 of the Scheme, which reads as under: "The beneficiaries of the incentive scheme shall ensure that the surplus funds generated through sale of the incentive sugar are utilized for the repayment of term loans, if any, outstanding from the Central Financial institutions. The sugar factories should submit utilization certificates annually from Chartered/Cost Accountant, holding certificate of practice. Utilisation certificate in respect of each sugar season during the incentive period should be furnished on or before the 31st December of the succeeding year. Failure to submit utilization certificate within the stipulated time may result not only in the termination of release of incentive free sale quota, but also in the recovery of the incentive free sale releases already made, by resorting to adjustment from the free sale releases of future years."

37 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 6. At this stage, we may again note that the 1980 and 1987 Schemes are similar to each other. In the case of Salem Cooperative Sugar Mills Ltd. we are concerned with the Scheme of 1980. 7. On the first question, namely, whether the incentive subsidy received by the assessee is a capital receipt, Shri P.V. Shetty, learned senior counsel appearing on behalf of the Department (appellant) submitted that the additional revenue generated by higher free sale sugar quota cannot be considered to be a capital receipt in the hands of the assessee (respondent herein) as held by the High Court. He further contended that similarly retention of the collective excise duty on the sale price of free sale sugar in excess of the normal quota and paying to the Government only the excise duty payable on the price of levy sugar resulted in revenue generation in the hands of the assessee which contention of the Department has been erroneously rejected by the High Court. According to the learned counsel, under the Scheme, there were two distinct concepts, namely, the concept of accrual of income in the hands of the assessee and the concept of application of additional funds generated thereunder. According to the learned counsel, application of additional funds is neither material nor relevant for deciding the character of the incentive subsidy. In this connection, learned counsel placed reliance on the judgment of this Court in the case of Sahney Steel and Press Works Ltd. and Ors. v. CIT reported in (1997) 228 ITR 253. 8. Shri Ganesh, learned senior counsel appearing on behalf of the assessee submitted that the benefits were conferred on the assessee under the 1980 and 1987 Schemes, namely, additional price by reason of enhancement of free sale sugar quota, which resulted in the benefit of additional price, which price had to be utilized only for repayment of loans taken by the assessee to establish a new unit or for expanding the existing unit. The said Schemes were not meant for a running unit. The second benefit, according to the learned counsel, lay in the rebate of excise duty under which the assessee was required to pay excise duty on the manufacture of additional quota of free sale sugar. According to the learned counsel, in judging the character of the incentive, the "purpose test" is applicable. In other words, according to the learned counsel, the character of the receipt in the hands of the assessee had to be determined with respect to the purpose for which the subsidy was given and that the point of time at which it is paid or its source or its form was irrelevant. In this connection, learned counsel also places reliance on the same judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). 9. The key question which arises for determination is: what is the character of the incentive subsidy under the said Schemes? 10. At the outset, it may be stated that during the relevant year in question, on account of economic factors, namely, high cost, the new sugar factories could not come up as it was not economically viable. Due to high

38 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 cost, the financial institutions did not come forward to advance loans to the entrepreneurs of new sugar factories. Secondly, the tempo of establishing new sugar factories received a serious set back, therefore, the Government appointed a Committee known as Sampat Committee to examine the question relating to economic viability of new sugar factories. One of the terms of reference suggested was to work out various incentives for making new sugar factories economically viable units. The increase of the cost of the project during the relevant years was on account of the increase in the cost of Plant and Machinery. The said Committee gave its Report in which the Committee recommended that the economic viability of a factory would mean that the unit should not break even after meeting the working expenses, interest on borrowings, depreciation on Plant and Machinery, but it should also be able to declare a reasonable dividend on the equity capital. According to the Committee, the factory should be able to generate sufficient funds to repay the instalments of the term loans. Under Para 21.0 the said Committee stated that five possible incentives for making a sugar plant economically viable unit could be provided for, namely, capital subsidy, allowing a larger percentage of free sale sugar, high levy sugar price, allowing rebate on excise duty and remission of purchase tax. In this case, we are concerned with allowability of a larger percentage of free sale sugar and rebate on excise duty. Following the said Report of the Sampat Committee, the above Schemes came to be formulated. 11. We have examined in this case the 1980 and 1987 Schemes. Essentially all the four schemes are similar except in the matter of details. Four factors exist in the said Schemes, which are as follows: (i) Benefit of the incentive subsidy was available only to new units and to substantially expanded units, not to supplement the trade receipts. (ii) The minimum investment specified was Rs. 4 crores for new units and Rs. 2 crores for expansion units. (iii) Increase in the free sale sugar quota depended upon increase in the production capacity. In other words, the extent of the increase of free sale sugar quota depended upon the increase in the production capacity. (iv) The benefit of the scheme had to be utilized only for repayment of term loans. 12. One important aspect may also be noted that in the case of Salem Cooperative Sugar Mills Ltd. we are concerned with Notification dated 15.11.1980. It indicates the above factors of the Scheme. The important point to be noted is that Government of India, financial institutions as well as the sugar industries are parties to the scheme in the sense that but for the

39 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 scheme the financial institutions would not have given term loans to set up new units/expansion of the existing units. 13. The main controversy arises in these cases because of the reason that the incentives were given through the mechanism of price differential and the duty differential. According to the Department, price and costs are essential items that are basic to the profit making process and that any price related mechanism would normally be presumed to be revenue in nature. In other words, according to the Department, since incentives were given through price and duty differentials, the character of the impugned incentive in this case was revenue and not capital in nature. On the other hand, according to the assessee, what was relevant to decide the character of the incentive is the purpose test and not the mechanism of payment. 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is

40 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant.” 37. On careful reading of the above, we note that the Hon’ble Supreme Court by referring to facts of the Sahney Steels & Press Works (supra) observed if the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account and the basic test to be applied in judging the character of a subsidy, that test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. Taking into account the same, held if the object of the assistance under the subsidy scheme was to enable the assessee to set up new unit or to expand the existing unit, then the receipt of the subsidy was on capital account.

41 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 facts of the present case, we note that the reward by way of MEIS scrips is given to offset infrastructure inefficiencies, but, not for the purpose of running the business more profitably. It is noted further that though the said amounts are brought into profit and loss account claimed as exempt in the return of income, we find the said treatment in the books of accounts by itself cannot be determinative of taxability, we, therefore, hold that the same treatment of amounts received by way of sale of MEIS scrips as credited to the profit and loss account cannot alter the receipt, in our opinion, does not fall in the definition of income even after insertion of sub-clause (xviii) to section 2(24) of the Act. Thus, it is a capital receipt, not chargeable to tax. Therefore, the contention of the ld. DR relying upon the decision in the case of Sahney Steels & Works Ltd (supr) is not acceptable.

42 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 'Subsidy: A grant of money made by government in aid of the promoters of any enterprise, work, or improvement in which the government desires to participate, or which is considered a proper subject for government aid, because such purpose is likely to be of benefit to the public' 17. From the above definitions, it is apparently clear that word exemption is used in the conditions when assessee is given freedom from following any rules or regulations whereas subsidy is something which is given to the assessee to meet the cost of its project. In the present case, assessee is exempted from making payment of excise duty to the extent of 36% of the total excise duty collected. It is not subsidy given to meet cost of project. In our view, the exemption from excise duty do not fall in the definition of income as envisaged u/s 2(24)(xviii) of the Act. Meaning thereby, the amount of Rs.1,85,49,324/- is not an income but a capital receipt not taxable under the provisions of the Act. 18. The Hon'ble Supreme Court in "Commissioner of Custom Vs. Dilip Kumar & Co.", (Supra) by considering the decision of judgment of State of West Bengal Vs. Kesoram Industries Ltd. 10 SCC 201 decided by the bench of 5 judges, has laid down the principles applicable for interpretation of taxing statute that in interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and that If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly'. This principal of law is quoted referred by Hon'ble Supreme Court in case of "Checkmate Services Pvt. Ltd. Vs. CIT", (2022) 448 ITR 518 vide Para 50 of its judgement. 19. Respectfully, applying the above settled principal of law, to the interpretation of the Notification No.56/2002 dtd. 14.11.2002 as amended by Notification No.19/2008 dt. 27.03.2008, the assessee is granted exemption from payment of excise duty to the balance part of 36% of total excise duty collected. Since, the word 'exemption' in not included in the of ambit the Section 2(24)(xviii) of the Act, though it specifically includes the words subsidy, grant, cash incentive, duty drawback, waiver, concession & reimbursement. and hence, in the absence of inclusion of word 'exemption' under the said clause, we are of the considered view that the scope of this section cannot be enlarged to include exemption by interpreting that it is subsidy. Accordingly, the addition of Rs.1,85,49,324/-, confirmed by Ld.

43 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 CIT(A) is held to be unjustified and bad in law. As such, the part addition confirmed by Ld. CIT(A) is directed to be deleted. Thus, the ground of the assessee is allowed. 40. On perusal of the above, we note that the Amritsar Bench of ITAT, by taking into account definition as per Black’s Law Dictionary, held the words “exemption” and “subsidy” are two separate independent words in. Further, it held the word “exemption” from excise duty do not fall in the definition of income as envisaged under section 2(24)(xviii) of the Act, thereby, held a sum claimed as exempt is not an income, but a capital receipt not taxable under the provisions of the Act. In order to come to such conclusion, the Amritsar Bench of ITAT placed reliance in the case of Commissioner of Customs v. Dilip Kumar & Co. AIR [2018] Supreme Court 3606, which laid down principle applicable for interpretation of taxing statute, that in interpreting taxing statute equitable consideration are entirely out of place, a taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted what is clearly expressed, it cannot employ anything which is not expressed, it cannot import provision to statute so as to supply any deficiency, that before taxing any person, it must be shown that he falls within the ambit of section 2(24)(xviii) of the Act and in the absence of inclusion of words under the said clause, the scope of section cannot be enlarged to include exemption by interpreting with its subsidy. We find the facts of the present

44 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 case are identical to the facts before ITAT Amritsar Benches. In the present case, the word “reward” is absent in the provisions of section 2(24)(xviii) of the Act, in the absence of said word in section 2(24)(xviii) of the Act, the scope of the section cannot be enlarged to include “reward”.

45 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 authorities are set aside and the addition made by the Assessing Officer is deleted." 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.

46 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 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 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.

47 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 44. Ground Nos. 2 to 10 raised by the Revenue in challenging the decision of the ld. CIT(A) in deleting the addition made towards disallowance of expenses on construction of building on leasehold land by treating the expenditure as revenue expenditure in the facts and circumstances of the case.

48 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 reliance on the decision of the Hon’ble High Court of Madras in the case of CIT v. K.V. Nellaiappan [2022] 135 taxmann.com 223 (Madras).

49 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 15. At the outset, we find that this issue has been decided by Tribunal in ITA No.1677/Chny/2019 for AY 2016-17 as under: - 5. We have considered the rival submissions on either side and perused the relevant material available on record. In the earlier round of litigation, this Tribunal in I.T.A. No.291/Mds/2017, examined this issue and remitted back the matter to the file of the Assessing Officer with a direction to re-examine the matter in the light of the judgment of Apex Court in Madras Auto Service (P.) Ltd. (supra) and the judgment of Madras High Court in TVS Lean Logistics Ltd. (supra). Now, the Assessing Officer has made a distinction between the cases before the Apex Court and Madras High Court on the one hand and the case of the assessee on the other hand. This distinction made by the Assessing Officer, according to the Ld. representative, is not correct. We have gone through the orders of the Assessing Officer and both the cases before the Apex Court and the High Court. In the case of the assessee before the High Court and Apex Court, the vacant property was taken on lease and the cost of construction was claimed by incurring heavy expenditure. In both the cases, the assessee was paying a nominal rate of rent when compared to the market rate of lease. We may say that the rent paid by the assessee may pertain to the land since the superstructure belongs to the assessee. After expiry of lease, the assessee has to demolish or may leave the construction as such and vacate the premises. In both the cases, the assessee has to lose the investment made for construction. Therefore, as rightly submitted by the Ld. representative for the assessee, the distinction made by the Assessing Officer between the case of the assessee and the cases before the Apex Court and the Madras High Court is not correct. This Tribunal is of the considered opinion that the facts of the case are identical to that of the Madras High Court and Apex Court. 6. We have carefully gone through the judgment of Apex Court in the case of Madras Auto Service (P) Ltd. (supra). The Apex Court at para 6 of its judgment observed as follows:- “6. The test for distinguishing between capital expenditure and revenue expenditure in our country was laid down by this court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34. In that case, the appellant-company had acquired from the Government of Assam lease of certain limestone quarries for a period of 20 years for the purpose of manufacture of cement. The lessee had, inter alia, agreed to pay an annual sum during the whole period of the lease as a protection fee and in consideration of that payment, the

50 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 lessor undertook not to grant to any person any lease, permit or prospecting licence for limestone. This court examined tests laid down in various cases for distinguishing between capital expenditure and revenue expenditure. One of the standard tests now in use was laid down in the case of Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155. It said (page 40 of 27 ITR) : “When an expenditure is made, not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.” Whether by spending the money any advantage of an enduring nature has been obtained or not will depend upon the facts of each case. Moreover, as the above passage itself provides, this test would not apply if there are special circumstances pointing to the contrary. This court in the above case summarised the tests as follows (page 44) : “1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. . . If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital.” (underlining ours) Relying upon the second test enumerated above, learned counsel for the appellant had submitted that the assessee got enduring benefit of a capital nature by spending the amount because the assessee obtained a new building for a period of 39 years. The difficulty, however, in the present case, arises from the fact that this building was never to belong to the assessee. Right from inception, the building was of the

51 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 ownership of the lessor. Therefore, by spending this money, the assessee did not acquire any capital asset. The only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent. The High Court has, therefore, rightly considered this as obtaining a business advantage. The expenditure is, therefore, to be treated as revenue expenditure.” 7. We have gone through the judgment of Madras High Court in TVS Lean Logistics Ltd. (supra). The Madras High Court after considering Explanation 1 to Section 32(1) of the Act and the judgments of Apex Court in Nasiruddin v. Sita Ram Agarwal (2003) 2 SCC 577 and Raghunath Rai Bareja v. Punjab National Bank (2007) 2 SCC 230, found that similar expenditure is revenue in nature. In fact, the Madras High Court has observed as follows:- “7. Similarly, there should be a literal rule of interpretation of a statute, which is the first and foremost principle of interpretation and where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule and even if the literal interpretation results in hardship or inconvenience, it has to be followed. The language employed in a statute is the determinative factor of the legislative event and even assuming there is a defect or any omission in the words used in the legislation, the court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result and any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline, vide Raghunath Rai Bareja v. Punjab National Bank [2007] 135 Comp Cas 163 (SC) ; [2007] 2 SCC 230. 8. What constitutes a capital expenditure and what does not, to attract Explanation 1 to section 32(1) of the Act depends upon the construction of any structure or doing any work or in relation to and by way of renovation, extension or improvement to the building which is put up in a building taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession of the assessee in a land taken on lease by the

52 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 assessee. Because the assessee did not acquire a capital asset, viz., the land in the instant case, but has put up a construction of the building only for the business advantage, with the result the entire construction cost is admissible as the revenue expenditure. 9. The apex court in L. H. Sugar Factory and Oil Mills P. Ltd. v. CIT [1980] 125 ITR 293 held that the construction of roads in the case of sugar mill is revenue expenditure. Similarly, contribution to the State Housing Board for construction of tenements for the workers was also held to be revenue expenditure by the apex court in the case of CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521.” 8. In view of the above judgment of Apex Court and the judgment of Madras High Court, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Thus, this issue has already been settled by Tribunal in assessee’s favor in earlier years and the facts are pari-materia the same. Since similar facts exist during this year and Ld. CIT(A) has merely followed the earlier order of the Tribunal, we see no reason to take a different view in the matter. 16. The case law of Hon’ble Apex Court in Mother Hospital Pvt. Ltd. vs. CIT [2017] 392 ITR 628 (SC) (as referred to by Ld. CIT-DR) is a case wherein a firm as owner of the land constructed hospital building. The firm leased the land to a tenant who reimbursed the cost of construction of building and claimed depreciation thereon. In this context, Hon’ble Apex Court held that the tenant would not be eligible for depreciation as per Explanation 1 to section 32(1) on the expenditure incurred towards construction of building since only when the assessee holds a lease right or other right of occupancy and any capital expenditure is incurred by the assessee on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension of or improvement to the building and the expenditure on construction is incurred by the assessee, the assessee would be eligible to claim depreciation. The Hon'ble Supreme Court has denied the claim of depreciation for the reason that where construction was not carried out by assessee himself, said explanation to section 32 would not come to the aid of assessee for claiming depreciation. However, in the present case, the assessee has already been found eligible to claim depreciation @10% by invoking Explanation-1 to Section 32(1). Therefore, the aforesaid decision of Hon'ble Supreme Court which held that the expenditure so incurred is not in the capital field, would mean that the

53 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 expenditure is in the revenue field and therefore, the same, in fact, would support the case of the assessee. 17. Proceeding further, upon perusal of Clause-11 of lease deed dated 02.05.2010, it could be seen that the assessee-lessee, upon termination of the lease, was to deliver the possession of the demised land to the lessor with or without removing the super structure, electrical and other installation thereon as may be mutually agreed upon by both the parties. The expenses in respect of the same would be borne by the lessee. Thus, the assessee has taken only the land on lease and upon termination of the lease period, the assessee was required to return the land with or without removing the super structure built by the assessee. Therefore, the lessor does not own the building and the assessee cannot own the same as capital asset since the land does not belong to the assessee and at the time of termination of lease agreement, the assessee has to either handover the building along with the land or remove the superstructure and handover the land to the lessor. Therefore, the said expenditure would be allowable as revenue expenditure in the hands of the assessee. For the aforesaid reasons, we confirm the impugned order, on this issue. The corresponding grounds raised by the revenue stand dismissed. The appeal of the revenue stand dismissed. This issue arises in AY 2015-16 also and the grounds raised therein stand disposed-off accordingly. 48. We find, admittedly, no change in the facts and circumstances in the year under consideration to that of the AYs 2014-15 & 2015-16 since issue is similar basing on same identical facts, we find no infirmity in the order passed by the ld. CIT(A) in allowing the claim of the assessee in treating the cost of construction as revenue expenditure. Thus, the ground Nos. 2 to 10 raised by the Revenue are dismissed.

ITA No. 326/Chny/2024 AY 2018-19 (Revenue’s appeal) 50. This appeal of the Revenue was filed with a delay of 59 days. Upon hearing both the parties, and on perusal of the affidavit, we find the

54 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 reasons stated therein are bonafide, which really prevented the Appellant- Revenue in filing the appeal in time. Thus, the delay of 59 days is condoned.

55 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 ITA No. 706/Chny/2022 in the case of Victus Dyeings v. ACIT for AY 2017-18 [assessee’s appeal] 55. Ground Nos. 1 & 2 are general in nature and requires no adjudication.

ITA No. 768/Chny/2022 in the case of ACIT v. M/s. KM Knit Wears for AY 2017-18 [Revenue’s appeal] 58. This appeal of the Revenue was filed with a delay of 206 days. Upon hearing both the parties, and on perusal of the affidavit, we find the reasons stated therein are bonafide, which really prevented the Appellant- Revenue in filing the appeal in time. Thus, the delay of 206 days is condoned.

56 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23

57 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 under capital receipts, rejected the additional ground raised by the assessee.

ITA No. 94/Chny/2023 in the case of San Tex Inc v. ACIT for AY 2017- 18 [assessee’s appeal] 67. Ground Nos. 1 & 2 are general in nature and requires no adjudication.

58 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 68. We find ground Nos. 3 to 5 and additional ground Nos. 6 & 7 raised by the assessee are similar to ground Nos. 1(i) & (ii) as raised by the Revenue in ITA No. 3326/Chny/2019 for AY 2017-18, wherein, on similar issue on same identical facts and circumstances, we have taken a view in confirming the order of the ld. CIT(A) and dismissed the grounds raised by the Revenue and the same view taken by us is equally applicable to the present case on hand. Thus, we set aside the order of the ld. CIT(A) on this issue and the ground Nos. 3 to 5 and additional ground Nos. 6 & 7 raised by the assessee are allowed.

59 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 on hand. Thus, we set aside the order of the ld. CIT(A) on this issue and the ground Nos. 3 to 6 raised by the assessee are allowed.

ITA No. 1014/Chny/2024 in the case of Gates Wear v. DCIT for AY 2020-21[assessee’s appeal]

60 I.T.A. Nos.3326/Chny/19, 326 & 1014/Chny/24, 706, 768,358/Chny/22 & 94 & 1348Chny/23 94/Chny/2023, ITA No. 1348/Chny/2023 & ITA No. 1014/Chny/2024 are allowed. Order pronounced on 20th September, 2024 at Chennai.

Sd/- Sd/- (JAGADISH) (S.S. VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 20.09.2024 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR & 5. गाड� फाईल/GF.