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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA [Before Shri A. T. Varkey, JM & Dr. A. L. Saini, AM] I.T.A Nos. 388 to 390/Kol/2014 Assessment Years: 2009-10 to 2011-12
Deputy Commissioner of Income-tax, Vs. M/s. Budge Budge Refineries Ltd. Central Circle-XXVII, Kolkata. (PAN: AABCB2880M) (Appellant) (Respondent)
Date of hearing: 02.01.2017 Date of pronouncement: 18.01.2017 For the Appellant: Shri G. Mallikarjuna, CIT, DR For the Respondent: Shri A. K. Tibrewal, FCA ORDER Per Bench :
The captioned three appeals filed by the Revenue pertaining to Assessment Years 2009-10, 2010-11 and 2011-12, are directed against the separate orders passed by the Ld. Commissioner of Income Tax (A), Central-II, Kolkata in appeal nos. 225/CC- XXVII/CIT(A)C-II/11-12, 01/CC-XXVII/CIT(A)C-II/13-14 and 77/CC-XXVII/CIT(A)C- II/13-14, dated 16.12.2013, 10.12.2013 and 10.12.2013 respectively, which in turn arise out of assessment orders passed by the AO u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 26.12.2011, 07.03.2013 and 03.08.2013 respectively.
At the outset, we find that all the appeals of Revenue are delayed by two days and Revenue has filed condonation petitions praying for condonation of delay. On perusal of the condonation petition and in view of the concession given by the Ld. AR for the assessee, we condone the delay and admit the appeals for adjudication.
These three appeals pertain to same assessee, different assessment years, common issues involved, therefore, therefore, all the appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The Revenue appeal in ITA No. 388/Kol/2014, pertaining to AY 2009-10 is taken as the lead case.
The brief facts qua the assessee are that the assessee filed its return of income for AY 2009-10 on 30.09.2009 declaring total income at ‘Nil’. The return of income was processed
2 ITA Nos. 388-390/Kol/2014 Budge Budge Refineries Ltd. AYs. 2009-10 to 2011-12 u/s. 143(1) of the Act on 30.09.2010. Later on the assessee’s case was selected for scrutiny u/s. 143(3) of the Act and the AO has completed the assessment by making the disallowance on account of sales tax incentive scheme. The assessee got the benefit of a sum of Rs.6,19,47,252/- being 75% of sales tax/VAT as receivable as Sales Tax Incentive under the scheme of State of West Bengal. The AO has treated the sales tax incentive as capital receipt and added to the income of the assessee.
Aggrieved from the order of the AO, the assessee filed appeal before the Ld. CIT(A), who has deleted the addition made by AO, observing the followings: “5. I have considered the submission of the appellant and perused the assessment order. I have also gone through the copy of Incentive Scheme as well as the copies of letters issued by the various State Authorities. The judicial decisions relied upon by the AO as well as the appellant are also gone through. The facts of the case have already been discussed as above that the appellant company was entitled to receive subsidy in the form of Industrial Promotion Assistance under “The West Bengal Incentive Scheme, 2000” from the Government of West Bengal amounting to Rs.6,19,47,252/-. The appellant has treated the said subsidy as capital in nature on the ground that it was given by the Govt. to encourage setting up new industries or expansion of the existing industries in the State of W.B. whereas the AO has treated the said incentive as revenue in nature and invoked the provisions of section 41(1) of the Act for the reason that the incentive was to be receivable by the appellant company by way of 75% of Sales Tax/VAT collected by the company on sale of its finished products. That, the appellant company collected the sales tax and the 75% of the same was not paid to the Government. Further, the deduction on account of payment of sales tax was allowed in earlier years and, therefore, 75% of such sales tax is taxable u/s. 41(1) of the act. However, in the assessment order, the AO did not discussed the submission made by the appellant in the course of assessment proceedings explaining as to why the sum of Rs.6,19,47,252/- is not taxable as revenue receipt. On the other hand, the appellant has claimed that the sum of Rs.6,19,47,252/- was receivable as Industrial Promotion Incentive under the West Bengal Incentive Scheme, 2000 and that there is no application of the provisions of section 41(1) of the Act because the appellant had not received any refund of sales tax from the Sales Tax Department. Further, entire amount of sales tax was paid to the government and no part of the sales tax was retained by the appellant as alleged by the AO. The appellant has also not claimed deduction on account of payment of sales tax as apparent from the Balance Sheet and the profit and loss account. On perusal of West Bengal Incentive Scheme, 2000, it is observed that it starts with the wordings: “Whereas in pursuance of a National policy the sales tax related incentives have been withdrawn from the 1st January, 2000.
3 ITA Nos. 388-390/Kol/2014 Budge Budge Refineries Ltd. AYs. 2009-10 to 2011-12 And whereas the State Government have considered it necessary and expedient to extend new types of incentives for promotion of industries in the State from the same date. Now, therefore, the Governor is pleased hereby, in supersession of the West Bengal Incentive Scheme, 1999 sanctioned under Commerce & Industries Department’s Notification No. 580-CI/H dated 22.06.1999 and amended from time to time, to approve and sanction a New Incentive Scheme for large, medium and small scale industrial units as under.” As per the Notification the scheme is known as ‘the West Bengal Incentive Scheme, 2000’ and shall come into effect on and from the 1st day of January, 2000 in the whole of West Bengal and shall remain valid for a period of five years ending on the 31st December, 2004. The section 4 of the Scheme provide the applicability of the 2000-Scheme and it says that it shall generally be applicable to all large, medium, cottage and small scale projects and to large/medium sector tourism units to be set up and also to expansion projects of existing units on or after the 1st January, 2000. The units may be in the private sector, co-operative sector, joint sector as also companies/undertakings owned or managed by the State Government. Section 6 of the Scheme provide the ‘Eligibility Criteria for incentives under the 2000- Scheme’ and section 7 provides ‘Classification of developed areas and backward areas’ thereafter. Section 8, 9, 10, 11, 12, 13, 14 and 15 provide for various types of incentives and subsidies which are ‘State Capital Investment Subsidy’, ‘Interest Subsidy’, ‘Waiver of Electricity Duty’, ‘Employment Generation Subsidy’ ‘Remission of Stamp Duty and Registration Fee’, ‘Subsidy for conversion for use of piped gas’, ‘Subsidy for quality Improvement in the Small Scale Sector’ and ‘Additional Incentive for Information Technology, Electronics, Agro and Food Processing Industries and Haldia Petrochemicals Ltd.’ From the above, it may be observed that the Scheme-2000 was announced for promotion of industries in the State with various types of incentives and subsidies as mentioned above. As per Scheme, the incentives were to be given for setting up of new units or expansion of the existing units and not to facilitate the trade or business of the industries. As per section 18 of the Scheme, under the Mega Projects, the Government may consider granting special package of incentives under this Scheme to a Mega Project. 5.1. Thus, the main aim and purpose of the Scheme for which it was sanctioned was ‘Promotion of Industries in the State of West Bengal’. Similar Schemes were sanctioned by the State Government in earlier years also to promote setting up of industries in the State and under those schemes various incentives were given to the registered and eligible industries. However, the object of all the Schemes was to provide incentives to promote the industries in the State of West Bengal. With the
4 ITA Nos. 388-390/Kol/2014 Budge Budge Refineries Ltd. AYs. 2009-10 to 2011-12 same object in supersession of the West Bengal Incentive Scheme, 1999, the new West Bengal Incentive Scheme, 2000 was announced by the State Government w.e.f. 1st January, 2000. It is observed that in the case of appellant company, Govt. of West Bengal, Commerce & Industries Department vide letter no. 1219/JS/DC dated 22.03.2004, approved a mega package for Budge Budge Refineries Ltd. to be located at Budge Budge, South 24 Parganas with an investment of Rs.65 crore for setting up an edible oil refinery plant and captive power generation unit. The said package was consisting of Industrial Promotion Assistance (IPA), State Capital Investment Subsidy, Waiver of Electricity Duty, Employment General Subsidy and Remission of stamp duty & registration charges. As per the approval letter, the Industrial Promotion Assistance was @ 75% of the sales tax paid in the year previous to the year during which IPA would be released subject to maximum of 100% of the fixed capital investment by way of adjustment against sales tax liability of that year. The sales tax paid will not include tax paid on the purchase of raw materials. The IPA will be available for a period of 15 years or till the financial cap is reached, whichever ends earlier. As per the approval letter, this package will continue even if West Bengal Sales Tax Act, 1994 is substituted by any other Act. The unit will apply to the Commissioner, Commercial Taxes, W.B. in the prescribed form requesting him to certify the total amount of tax paid during the year on sales and purchase in respect of which application has been made. Such application be filed at the end of each year. Upon receipt of application, the Commissioner, Commercial Taxes, W.B. would verify the payments and other particulars as contained in the application and issue a certificate to the Managing Director, WBIC Ltd. certifying the tax paid by the unit on its sales during the year in question. The MD, WBIC Ltd. on receipt of the intimation as above will issue cheques for an amount @ 75% of the tax paid by the unit of its sale in the previous year as Industrial Promotion Assistance. Further, the appellant unit would be eligible to all the benefits including the Industrial Promotion Assistance only after the total investment crosses the limit of Rs.25 crores and on starting commercial production. The West Bengal Industrial Development Corporation Limited issued Eligibility Certificate no. INC-2000/EC-425(B) dated 07/08.06.2006 to the appellant company under the W.B. Incentive Scheme, 2000 specifying the incentives for which the appellant company was entitled. The eligibility certificate was for Incentives for Mega Project under W.B. Incentive Scheme, 2000. The registration under W.B. Incentive Scheme, 2000 was issued to the appellant company by the Directorate of Industries, Govt. of West Bengal vide certificate of Registration DI/2000/581(B)/102(4)/1983 dated 17.02.2005. Thus, as per the scheme, the Industrial Promotion assistance was provided as incentive for setting up of new unit or expansion of existing unit, though, the mode of calculation of assistance was sales tax paid by the appellant company. Under the circumstances, I am of the opinion that it is not correct to say that the subsidy/incentive was given to the appellant for the purpose of carrying on business or trade by way of refund of sales tax or that there was cessation of liability on account of payment of sales tax attracting the provisions of section 41(1) of the Act. Though, the method of calculation of IPA is payment of sales tax but the purpose of giving the incentive is setting up/expansion of industries in the backward areas of the State of West Bengal. In the case of Sahney Steel & Press Works Ltd., (supra), it is held by the Hon’ble Supreme Court that if payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on its trade or business, they are trade receipts. The character of the subsidy in the
5 ITA Nos. 388-390/Kol/2014 Budge Budge Refineries Ltd. AYs. 2009-10 to 2011-12 hands of recipient whether revenue or capital – will have to be determined, having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project, the moneys must be treated as having been received for capital purposes. But, if moneys are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. In the case of appellant, it had received subsidy/incentive under the West Bengal Incentive Scheme, 2000 in the form of Industrial Promotion Assistance. On perusal of approval letter, it is apparent that the incentive was allowed to the appellant company for setting up an Edible Oil Refinery Plant and Captive Power Generation unit. The sole objective of the scheme formulated by the State Government was to allow incentive to the entrepreneurs to establish the new industries or expand the existing industries in backward areas for overall economic development of the State of West Bengal. On going through the West Bengal Incentive Scheme, it is observed that the subsidy was not allowed to assist the appellant company in carrying on its trade or business or carrying out the business operation. The units which were set up by the appellant company, both are located in Mouza- Budge Budge, P.O. Budge Budge, South 24 Parganas in the State of West Bengal. As per the Incentive Scheme, 2000, the appellant’s units fall under Group-B of classification of areas. Accordingly, the appellant company had received incentive in the form of Industrial Promotion Assistance and other incentives specified for Group- B location. Since, the incentive has not been allowed to the appellant company for its business or trade, hence, even as per the decision of Hon’ble Supreme Court in the case of Sahney Steel & Press Works Ltd. the amount receivable by the appellant on account of Industrial Promotion Assistance, would be capital in nature.
5.2. In the case of CIT Vs. Ponni Sugars & Chemicals Ltd. reported in 306 ITR 392 (SC), by applying the decision in the case of Sahney Steel & Press Works Ltd., it is held by the Hon’ble Supreme Court that the character of the receipt of a subsidy in the hands of the assessee under the scheme has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the objects of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existing unit then the receipt of the subsidy would be on capital account.
In the case of appellant company, the incentive was receivable from the West Bengal Government under the West Bengal Incentive Scheme, 2000 in the form industrial promotion assistance, to be calculated on the basis of payment of sales tax. However, the sole object of the aforesaid incentive scheme was to enable the appellant to set up a new edible oil refinery plant and captive power generation unit. In the case of appellant, it had invested a substantial amount in fixed capital assets for the purpose of setting up a new unit. Hence, as per the principles laid down by the Hon’ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (Supra), the receipts on
6 ITA Nos. 388-390/Kol/2014 Budge Budge Refineries Ltd. AYs. 2009-10 to 2011-12 account of industrial promotion assistance receivable by the appellant company is on capital account.
5.8. The view taken by the appellant that the amount received/receivable from the Govt. of West Bengal in the form of Industrial Promotion Assistance for setting up a new unit is capital in nature, also find support from the decision in the case of DCIT Vs. Inox Leisure Ltd., 351 ITR 314 (Guj); CIT Vs. Reliance Industries Ltd., 339 ITR 632 (Bom); Shree Balaji Alloys Vs. CIT, 333 ITR 335 (J&K) and CIT Vs. Chaphalkar Bros., 215 Taxman 145 (Bom)(Mag.).
In view of the facts in the case of appellant company as well as respectfully following the principles laid down in various judicial pronouncements by the Hon’ble Supreme Court, Jurisdictional High Court as well as the Jurisdictional ITAT, as discussed above, it is to be held that the receipt of Rs.6,19,47,252/- receivable by the appellant company on account of industrial promotion assistance under West Bengal Incentive Scheme, 2000 is capital in nature. Hence, the said receipt is not includible in the taxable income of the appellant company. There is no application of provisions of section 41(1) as held by the AO as there was no cessation of liability on account of payment of sales tax. The AO is directed to delete the addition made by him. The ground no. 1 and 2 are allowed.”
In the assessment proceedings for the AY 2007-08 Rs.3,72,95,124/- being 75% of Sales Tax/VAT receivable as sales tax incentive under the scheme of the State Government was treated as income u/s. 41(1) and added to the income. Assessee company preferred appeal against this addition before the CIT(A)-C-II, Kol. The CIT(A) vide his order dated 26.04.2010 directed the AO to delete the addition as this was not a subject matter for the financial year 2006-07 relevant to assessment year 2007-08. Accordingly, Rs.3,72,95,124/- was deleted from the assessed income for the AY 2007- 08 vide order u/s. 251 dated 16.07.2010. The amount of Rs.3,72,95,124/- was received by the appellant on 31.03.2009 i.e. in financial year 2008-09 relevant to assessment year 2009-10. So, Rs.3,72,95,124/- is treated as income u/s. 41(1) of the I. T. Act on the ground that remission of liability which was allowed as a deduction earlier is taxable as income u/s. 41(1) of the I. T. Act. Hence, Rs.3,72,95,124/- is added to the total income of the assessee company as undisclosed income.”
During the course of appellate proceedings, the appellant has submitted as under:
“This ground of appeal relate to addition of Rs.3,72,95,124 made by the Ld. Assessing Officer on the ground that this amount was previously considered as income chargeable to tax u/s. 41(1) of the Act in the assessment year 2007-08 but the same was deleted by Ld. CIT(A) on the ground that the same was a provision made by the Appellant in its books of accounts on the basis of claims made by it before WBIDC. However, the sum of Rs.4,69,78,053/- was actually paid by WBIDC vide their Cheque No. 252741 dated 17.03.2009 drawn in favour of “Commercial Tax Officer, West Bengal Account Budge Budge Refinery Ltd.”. The photo copy of the said cheque and
7 ITA Nos. 388-390/Kol/2014 Budge Budge Refineries Ltd. AYs. 2009-10 to 2011-12 the receipt of the same issued by the Appellant Company is enclosed in the paper book at pages 90 and 91.
On perusal of the aforesaid receipt and the cheque it would be found that the sum of Rs.4,69,78,053/- was paid by WBIDC on account of Industrial Promotion Assistance under The West Bengal Incentive Scheme, 2000. Under the scheme the amount of incentive was to be paid to Commercial Tax Officer on account of CST/VAT liability of the Appellant. However, the nature of the incentive was “Industrial Promotion Assistance” which is a capital receipt as stated earlier while making submissions in respect of ground nos. 1 and 2 above. The Appellant Company refers to and relies on various decisions as stated herein above.
In any case, the said amount cannot be considered as waiver or cessation of sales tax liability as alleged by the Ld. Assessing Officer inasmuch as the CST/VAT for the financial year 2006-07 relevant to Assessment Year 2007-08 (to which the Incentives was received) was duly paid by the Appellant in those years. Thus the Ld. Assessing Officer was not justified in adding the sum of Rs.3,72,95,124/-. The said amount cannot be added to the income of the Appellant Company for any reasons whatsoever since the same is a capital receipt as stated hereinabove.”
I have considered the submission of the appellant and perused the assessment order. The issue raised in ground no. 3 is same as in ground no.1 and 2. The only difference is that in ground no. 1 and 2 the amount on account of Industrial Promotion Assistance was receivable whereas in ground no. 3 the amount was received by the appellant in the year under consideration. But, the fact remains that both the sums receivable and received were on account of Industrial Promotion Assistance under the West Bengal Incentive Scheme, 2000 given to the appellant company for setting up an Edible Oil Refinery Plant and Captive Power Generation Unit at Budge Budge. Thus, the incentive received by the appellant was capital in nature and there was no application of provision of section 41(1) of the Act as discussed above while adjudicating ground no. 1 and 2. For the reasons discussed above in ground no. 1 and 2, it is held that the sum of Rs.3,72,95,124/- received as industrial promotion assistance was a capital receipt not liable to tax. Therefore, the AO is directed to delete the addition made by him. The ground no. 3 is allowed.”
Not being satisfied with the order of the Ld. CIT(A), the Revenue is in further appeal before us and has taken the following grounds of appeal: “1. That in the facts and circumstances of the case and in law the Ld. CIT (A) has erred in directing to delete the addition of Rs 6,19,47,252/- receivable by the appellant company on account of industrial promotion assistance under West Bengal Incentive Scheme, 2000 by holding it to be of capital in nature and hence not inc1udible in the taxable income of the assessee. 2. That in the facts and circumstances of the case and in law the Ld CIT (A) has erred in directing to delete the addition of Rs 6,19,47,252/ - receivable by the appellant company on the ground that there was no cessation of liability, without appreciating the fact that the
8 ITA Nos. 388-390/Kol/2014 Budge Budge Refineries Ltd. AYs. 2009-10 to 2011-12 assessee was maintaining its accounts on mercantile basis and had accounted for the transactions in the current year. 3. That in the facts and circumstances of the case and in law the Ld CIT (A) has erred in directing to delete the addition of Rs 3,72,95,124/-on account of Incentive received of Rs.3,72,95,124/ -[ @75% of Sales Tax/VAT for the F.Y. 2008-09 as Industrial Promotion Assistance under W. B. Incentive Scheme 2000]”
6.1. The Ld. AR for the assessee has submitted before us that the assessee company was entitled to receive subsidy in the form of Industrial promotion Assistance under the West Bengal Incentive Scheme, 2000 from the Govt. of West Bengal amounting to Rs.6,19,47,252/-. The assessee company has treated the said subsidy as capital in nature on the ground that it was given by the Government to set up a new unit or to expand an existing unit in the State of West Bengal. But the AO has treated the said incentive as revenue in nature and invoked the provisions of section 41(1) of the Act for the reason that the incentive was to be receivable by the assessee company by way of 75% of sales tax collected by the company on sale of its finished products. The assessee company collected the sales tax and the 75% of the same was not paid to the government as per the scheme of the Government. In addition to this, the deduction on account of payment of sales tax was allowed in earlier years and therefore, 75% of such sales tax was taxable u/s. 41(1) of the Act as per the Assessment Order. In the assessment order, the AO did not discuss the submission made by the assessee company in the course of assessment proceedings explaining the reason as to why the sum of Rs. 6, 19,47,252/- is not taxable as revenue receipt. The assessee company has clearly submitted before the AO that the sum of Rs.6,19,47,252/- was receivable as industrial promotion incentive under the West Bengal Incentive Scheme, 2000 and that there is no application of the provisions of section 41(1) of the Act, because the assessee company had not received any refund of the sales tax from the Sales Tax Department. The assessee company has relied on the judgment of the Hon’ble Supreme Court in CIT Vs. Ponny Sugars & Chemicals Ltd. 306 ITR 392 (SC). The Ld. AR for the assessee in this way has strongly defended the order passed by the Ld. CIT(A).
9 ITA Nos. 388-390/Kol/2014 Budge Budge Refineries Ltd. AYs. 2009-10 to 2011-12 6.2. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the AO, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 6.3. Having heard the rival submissions and perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the proposition canvassed by the ld. AR for the assessee are supported by the judgment of Hon’ble Supreme Court and the facts narrated above. The Ld. AR for the assessee has pointed out before us that the assessee company got the subsidy from the West Bengal Government in the form of Industrial Promotion Assistance under the West Bengal Incentive Scheme-2000. The said scheme clearly says that it is for the company to establish its unit in the backward area to promote the employment and other facilities in the backward areas and the said incentive was towards capital receipt in nature. The Ld. AR for the assessee also pointed out that the said scheme is not for the assessee company to reimburse the day to day operational expenses, therefore, it cannot be in the nature of revenue. Considering the factual position and the precedent cited by the Assessee before the Ld. CIT(A) and before us, we are of the view that the Ld. CIT(A) has passed a reasoned order and it does not require any modification. Therefore, we confirm the order passed by the Ld. CIT(A).
6.4 In the result, Appeal filed by the Revenue is dismissed.
In rest two appeals same issues are involved, except to a small covered issue, which relates to Section 35D of the Act. The Assessee claimed preliminary expenses of Rs.21,74,874/- in the return of Income and that was allowed in the assessment U/s 143(3) of the Act. The said claim of preliminary expenses had been allowed by the Assessing Officer in previous years. However, the deduction claimed in the year under consideration has been disallowed by the Assessing Officer stating that the assessee has not substantiated its claim. We are of the view that there is no reason to disallow the claim U/s 35D in the year under appeal when the similar claim was allowed in earlier years. Therefore, the ld.CIT (A) has rightly deleted the addition. On this, squarely covered issue, we confirm the order passed by the ld CIT(A).
10 ITA Nos. 388-390/Kol/2014 Budge Budge Refineries Ltd. AYs. 2009-10 to 2011-12 7.1 In the result, all the three appeals filed by the Revenue ( In ITA No.388, 389 & 390/Kol/2014), are dismissed.
Order pronounced in the open court on 18.01.2017
Sd/- Sd/- (A. T. Varkey) (Dr. A. L. Saini) Judicial Member Accountant Member 18th January, 2017 Dated : Jd. Sr. P.S
Copy of the order forwarded to: 1. Appellant – DCIT, Central Circle-XXVII, Kolkata. 2. Respondent – M/s. Budge Budge Refineries Ltd., 23B, A. M. Ghosh Road, Budge Budge, Kolkata-700 137. 3. CIT(A), Kolkata 4. CIT, Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar.