M/S CHINQ MICRON CHEM (P) LTD.,PAONTA SAHIB vs. DCIT, CIRCLE, SHIMLA

Per Sanjay Garg, Judicial Member:

The captioned appeals have been preferred by the respective

assessees against the separate orders of the Commissioner of Income

Tax(A), Shimla [hereinafter referred to as ‘CIT(A)’] dated

25.07.2017.

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 2

identical, hence, these were clubbed together vide order dated

23.5.2018 of Hon'ble Vice President, ITAT and heard in ‘A’ Beach

of ITAT Chandigarh and are being disposed of by this common

order.

For the sake of convenience, the ITA No. 1417/Chd/2017 is

taken as a lead case for discussion.

ITA No. 1417/Chd/2017

grounds:- 1. That the order of the Learned Commissioner of Income Tax (Appeals), Shimla is defective both in. law and facts of the case.

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 3

the assessee, which reads as under:-

That the amount of Sales Tax Incentive of Rs.17,92,165/- received by the appellant under the General Sales Tax (Deferral Payment of Tax) Scheme 2005 notified by the Excise and Taxation Department vide Notification No, EXN-F(1)2/2004 dated 30-03- 2005 in the state of Himachal Pradesh is a Capital Receipt and not liable to tax under the provisions of the Income Tax Act, 1961. Similarly, held by the Hon 'ble Supreme Court in the cases of CIT Vs. Shree Balaji Alloys & Ors. (138 DTR 36) and CIT Vs. Chaphalkar Brothers (400 1TR 279).

require any specific adjudication.

additional ground taken by the assessee is an alternative to ground

No.2 of the appeal. The issue involved is relating to taxability of the

sales tax incentive of Rs. 17,92,165/- received by the assessee under

the Himachal Pradesh Government General Sales Tax (Deferred

payment of tax) Scheme 2005.

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 4

incentive received by the assessee was liable to be taken as exempt

u/s 80IC of the Income-tax Act, 1961 (in short 'the Act') as the same

was part of the profits of the business derived from the Industrial

undertaking eligible for deduction u/s 80IC of the Act, however, in

the additional ground of appeal the assessee relying upon the latest

decisions of the Hon'ble Supreme Court in the case of ‘CIT Vs.

Shree Balaji Alloys & Ors’ 138 DTR 36 (SC) and ‘CIT Vs.

Chaphalkar Brothers (400 ITR 279) has claimed that the said receipt

was capital receipt not liable to tax under the provisions of Income

Tax Act.

this stage.

assessee from the very beginning has been contesting the liability to

pay tax on the aforesaid sales tax incentives received by the assessee

from the State Government under the General Sales Tax (Deferred

payment of Tax) Scheme 2005. The issue regarding the nature of the

said receipts as well as the question of allowability of the same as

deduction u/s 80IC of the Act had been raised by several assessees

in various cases and the matter in other cases travelled up to the

Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of

‘CIT Vs. Chaphalkar Brothers (supra) while deliberating on the

other decisions of the Supreme Court held that to hold whether

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 5

any of such receipts are capital or Revenue in nature, ‘purpose

test’ is to be applied. If the purpose is for the setting up of new

industry, then the receipts are to be considered as capital in

nature. However, if the receipts are in the nature of facilitation /

helping hand to the trade, the same are to be construed as Revenue

in nature. What is important is the object for which the subsidy /

incentive is granted. That the object is carried out in a particular

manner is irrelevant. Once the object of the subsidy was to

industrialize the State and to generate employment in the State,

the fact that a subsidy took a particular form and that it was

granted only after commencing of production, would not make any

difference. The Hon'ble Supreme Court made reference to the

decision of the Hon'ble J&K High Court in the case of ‘Shri

Balaji Alloys v CIT’ (2011) 333 ITR 0335, wherein, the Hon'ble

High Court while considering the scheme of refund of excise duty

and interest subsidy, has held that the receipts were capital in

nature despite the fact that the incentives were not available until

and unless the commercial production has started and despite the

fact that these incentives were not given to the assessee expressly

for the purpose of capital assets. Even the said decision of the

Hon'ble J & K High Court (supra) has been upheld by the Hon'ble

Supreme Court vide order dated 19.4.2016 reported in 138 DTR

36 (SC).

directly applicable to the facts and issues involved in the case of

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 6

the assessee, in our view, in the light of the latest decision of the

Hon'ble Supreme Court (supra), the assessee is well within its

right to take this legal plea even at the appellate stage before us.

The question as to whether the assessee can take an additional ground

at appellate stage even when the same has not been raised before the

lower authorities has been thoroughly discussed by Co-ordinate

Mumbai Bench of the Tribunal in the case of “Pandoo P. Naig” in

ITA No.7089/Mum/2011 decided on 24.06.2016 [2016 (9) TMI

1062]. The Tribunal, while relying upon the decision of the Hon’ble

Supreme Court in the case of “National Thermal Power Company

Ltd. vs. CIT” 229 ITR 383, Full Bench of the Hon’ble High Court in

the case of “Ahmedabad Electricity Co. Ltd. vs. CIT” (1993) 199 ITR

351, another decision of the Hon’ble Bombay High Court in the case

of “CIT vs. “CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd.”

(2012) 349 ITR 336 (Bom.) has held that the appellate authorities

have jurisdiction to deal not merely with additional ground which

became available on account of change of circumstances or law, but

with additional grounds which were available when the return was

filed.

the various clauses of the scheme to demonstrate that the

aforesaid scheme of General Sales Tax (Deferred payment of Tax)

is applicable on setting up of new industrial unit in the State and

also on substantial expansion in respect to industrial units

existing before 7.1.2003. It has been provided that to avail benefit

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 7

under the scheme, either a new unit should be established or the

existing unit be expanded by increasing in installed capacity by

not less 25% of the capacity by way of installation of additional

plant and machinery and further it should commence production

with the stipulate date. Further such expansion are resulting in

additional employment of at least 25% of the existing manpower

on regular basis excluding the employment on contractual or sub-

contractual basis and further that 70% of its total manpower

should be from amongst the bonafide Himachalis. The unit had

to be established in specific rural areas of the Himachal Pradesh.

The Ld. counsel has demonstrated that the aforesaid incentive had

been given by the government for the purpose of encouraging the

setting up of new units / expansion of units with the object of

infrastructure development in backward and rural area of

Himachal Pradesh and also for employment generation for the

citizen of India in general and for bonafide resident of Himachal

Pradesh in particular.

In view of the above, this issue in this appeal is squarely

covered by the decision of the Hon'ble Supreme Court in the case

of ‘CIT Vs. Chaphalkar Brothers (supra) and is squarely applicable

to the facts of the case. Hence, it is held that the above incentive

received by the assessee was capital receipt and not liable to

taxation. This issue is accordingly decided in favour of the assessee.

disallowance made by the lower authorities in relation to the

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 8

expenditure incurred for earning of tax exempt income under the

provisions of section 14A of the income Tax Act.

for the year under consideration the assessee did not earn any tax

exempt income from the investments made. He, therefore, has

submitted that in the light of the decision of the Hon'ble

Jurisdictional High Court in the case of ‘CIT Faridabad Vs. Lakhani

Marketing Inc. Ltd’, ITA No. 970 of 2008 (O&M), no disallowance

was attracted u/s 14A of the Act.

Assessing officer.

decisions of the different High Courts in favour of the assessee.

CIT, Faridabad Vs. Lakhani Marketing Inc.’ 226 Taxman 45 (P&H)

CIT Vs. Winsome Textiles’ (2009) 319 ITR 204 (P&H)

Cheminvest Ltd Vs. ITO’ (2015) 378 ITR 33 (Delhi)

Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116 (Gujarat High Court)

CIT Vs. M/s Shivam Motors (P) Ltd’ (2014) 272 CTR (All) 277

In all the above referred to case laws, the Hon'ble High Courts have

been unanimous to hold that no disallowance is attracted u/s 14A of

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 9

the Act in case the assessee has not earned any income not forming

part of the total income.

of the CIT(A) on this issue and the same is upheld. This issue is

accordingly decided in favour of the assessee.

action of the lower authorities in making the addition u/s 36(1)(iii) of

the Act on account of disallowance of interest expenditure

attributable to the investment made by the assessee for non-business

purposes.

that the assessee had own sufficient funds to meet the investments

and further that the investments were made for business purpose of

the assessee. He has further submitted that the lower authorities have

not given proper opportunity to the assessee to demonstrate that the

assessee had availability of own / interest free funds with it to meet

the investments in question. He, in this respect has submitted that the

assessee may be given opportunity to demonstrate in this respect

before the Assessing officer.

authorities, however, could not convince us as to why the assessee be

not given an opportunity to demonstrate the availability of own /

interest free funds with it and investment thereof.

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 10

officer to examine the contention raised by the assessee and to

decide the issue afresh in accordance with law.

specific adjudication

treated as allowed for statistical purposes.

ITA No. 1416/Chd/2017 23. Ground No.1 : Ground No.1 is general in nature and does not

require any specific adjudication.

Ground No.2 & Additional ground of appeal: The issue 24.

raised by the assessee in this ground is identical to that has been

taken and adjudicated upon by us in ITA No. 1417/Chd/2017 above.

Our findings in this respect will mutatis-mutandis apply and

this issue is accordingly decided in favour of the assessee.

is regarding disallowance u/s 14A of the Act and an identical plea

has been taken by the assessee that no tax exempt income had been

earned by the assessee during the year under consideration.

In view of our findings given above, while deciding the ground

No.3 of the appeal in ITA No.1417/Chd/2017, this issue is

accordingly decided in favour of the assessee.

ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 11

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 21. 08.2018 Rkk Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR