ITAT DELHI BENCH 'D'

IT Appeal Nos. 3319 & 3254 (DelhI) of 2008
[ASSESSMENT YEAR 2004-05]

U.B.S. BEDI, JUDICIAL MEMBER
AND T.S. KAPOOR, ACCOUNTANT MEMBER

D.K. Mishra for the Appellant.
Ajay Vohra, Rohit Jain and Upvan Gupta for the Respondent.

T.S. Kapoor, Accountant Member - These are cross appeals filed by the revenue as well as by the assessee against the order of Ld CIT(A) dated 18.8.2008. The grounds taken by the revenue as well as by the assessee are as under:—
I.T.A. No. 3319/Del/2008( Revenue's appeal):

I.T.A. No. 3254/Del/2008: (Assessee's appeal):

2. The brief facts of the case are that assessee is engaged in the manufacturing of sponge iron, universal ream/railway mile with its own captive power plant. Besides captive consumption, the assessee is also engaged in supplying electricity to Chattisgarh State Electricity Board. The return of income declaring total income of Rs. 67,15,19,540/- was filed availing deduction u/s 80IA, 80IB & 80HHC of the Income Tax Act, 1961 . The company had paid tax u/s 115JB of the Act being higher than tax on normal income. The case of the assessee was selected for scrutiny. During assessment proceedings the Assessing Officer observed that the cost of production of power was Rs. 1.10 per unit whereas it had charged Rs. 3.7243/3.698 per unit for captive consumption and Rs. 3.292 for its Raipur Unit. In this view of the fact the Assessing Officer observed that charging of rate of Rs. 3.7243/3.698 & 3.392 per unit on the supply of power was not justified. The Assessing Officer further observed that the assessee had supplied power to State Electricity Board @ Rs. 2.32 per unit. In view of the above, the Assessing Officer held that at least Rs. 2.32 per unit can be considered as reasonable rate and anything above this charged to its own unit and for captive consumption were un-reasonable profits which the assessee had inflated only to increase deduction u/s 80-IA of the Act. The assessee, however, submitted that transfer rate of 3.7243/Rs. 3.698 per unit applied by it for its captive consumption is the market rate and is adopted from rate at which electricity is supplied by SEB to industrial consumers. It was also submitted that rate of Rs. 2.32 per unit at which surplus power was sold to SEB was the price determined and dictated by Power Purchase Agreement dated 15.7.1999 entered into with SEB and was in no way an open market price. Reliance was put in this regard on the judgment of Mumbai Tribunal in the case of West Coast Paper Mills Ltd. v. Asstt. CIT [2006] 103 ITD 19 and in the case of Assam Carbon Products Ltd. v. Asstt. CIT [2007] 12 SOT 41 (Kol.)(URO) . The Assessing Officer, however, did not agree with the contentions of assessee on the basis of total units supplied to its Raipur Unit and units consumed for captive consumption, the Assessing Officer calculated an amount of Rs. 47,16,63,475/- as the excess amount which the assessee had claimed for the purpose of section 80IA of the Act.

3. The Assessing Officer further observed that due to inflated power bill, the other units like Kiln No.6, Mini Blast Furnace Unit & Ferro Chrome Unit of assessee company must have disclosed lower profits then actual. He further observed that assessee had claimed deduction u/s 80IB on Kiln No.6 only whereas no deduction u/s 80IB was claimed on blast furnace unit and ferro chrome unit due to negative income in those units. The assessee, during assessment proceedings vide written submissions dated 26.12.2006 pleaded for considering its claim for deduction u/s 80IB of the Act in respect of mini blast furnace and ferro chrome unit as according to assessee the profits of these units will increase and will become positive in the event of deduction u/s 80IA was curtailed. The assessee further submitted that the claim is in accordance with Note No.5 given in the computation of income where this claim was not quantified in view of the negative incomes of these units and hence no statutory forms were enclosed with the return of income at that time. Fresh certificate u/s 80IB in respect of both the units with the positive incomes quantifying allowable deduction u/s 80IB were placed by the assessee during the course of assessment proceedings. Considering the reply of assessee, the Assessing Officer held that deduction u/s 80IB was allowable for blast furnace unit and ferro chrome unit and also enhanced deduction u/s 80IB on Kiln No.6. Therefore, in view of above, the Assessing Officer allowed deduction u/s 80IB totaling Rs. 20,92,17,564/-.

4. The Assessing Officer further observed that assessee had made payment of Rs. 3,22,125/- to clubs and assessee was asked to justify as to how this was allowable. In reply, the assessee submitted that payment was allowable being corporate membership fee paid during the year and placed a receipt of Rs. 3 lakhs issued by Chattishgarh Club describing it as corporate membership fee. The Assessing Officer allowed the deduction of Rs. 3 lakhs and disallowed the amount of Rs. 22,125/- in the absence of proof of bill/receipt of Rs. 22,125/-.

5. The Assessing Officer also noted that assessee had claimed deduction of Rs. 1,09,310/- on account of commission paid to M/s Ganesh Steel Rolling Mills Ltd. Hissar. The Assessing Officer noted that enquiries made during the course of assessment proceedings for assessment year 2003-04 had revealed that there was no such premises at Hissar where the above quoted company was working. Therefore, on this fact, the disallowance was made in the earlier year. During the course of assessment proceedings, the assessee had placed on record the agreement dated 25.3.2002 entered into with the above consignment agent. However, the Assessing Officer held that this concern was found to be non working in the earlier year. Therefore, the disallowance of commission to the tune of Rs. 1,09,310/-was made.

6. The Assessing Officer also observed that in the assessment year 2003-04 vide order dated 30.3.2006 depreciation was allowable on turbine and 220 KV transmission line by following the straight line method while the assessee had claimed it on WDV method as per rates given in appendix 1 of IT Rules. The Assessing Officer observed that there is no deviation in the facts or position in law, therefore, he disallowed an amount of Rs. 89,53,761/- being difference of depreciation calculated under the straight line method and under WDV method.

7. The Assessing Officer further observed that the assessee company had taken air craft on lease and found that in previous year some disallowance was made for non business use of the same. During the course of assessment proceedings the assessee was required to file detail of air travel journeys to different places. The Assessing Officer observed that no evidence was filed to prove that such a craft can be used by employees for other than business purposes therefore he inferred that even Managing Director/Chairman was not entitled to use the air craft for purposes other than business. Therefore, the expenses incurred by the assessee's business journeys by air craft was allowed and expenses attributable to non business purposes was not allowed. The plea of the assessee company of having fixed expenses in the shape of salary, maintenance, insurance, lease rentals though was accepted but variable expenses comprising of expenses like aviation fuel, spare parts, administrative expenses not linked with its business was not allowed. The Assessing Officer worked out variable cost of Rs. 29,083/- and made an addition of Rs. 5,47,530/- on account of 18 hours and 15 minutes of non business use of the air craft.

8. The Assessing Officer further noted that during assessment proceedings, the assessee has placed on record a letter dated 28.12.2006 wherein it had requested to adopt revised/reduce computation of income arrived at after deducting an amount of Rs. 24,,77,25,360/- representing subsidy received from Govt. The assessee had retained this amount by not paying sale tax collected and by not paying electricity duty and entry tax and had declared this as revenue receipt in the books of accounts and return of income. During assessment proceedings it was submitted that nature of subsidy was capital and was not liable to tax and therefore revisded computation of income was filed. The Assessing Officer rejected the same holding that the amount was received as incentive, Govt. grant and was in the nature of revenue receipt.

9. Dissatisfied with the order of the Assessing Officer, the assessee filed appeal before Ld CIT(A) and submitted as under:—

10. As regards disallowance of depreciation u/s 32 of the IT ACT, the Ld AR of the assessee submitted that the issue was covered in favour of appellant by the decision of Delhi Bench of Tribunal in the case of appellant for assessment year 2000-01 Jindal Steel & Power Ltd. v. Addl. CIT [2006] 10 SOT 106 (Delhi). It was also submitted that the said decision has been followed by the Tribunal in appellant's own case for assessment year 2001-02. The Ld CIT(A) following the earlier year order of the Tribunal deleted the disallowance of depreciation.

11. In respect of disallowance on account of air craft expenses, the appellant submitted that traveling to places mentioned in the assessment order was only for purposes of businesses but Ld CIT(A) upheld the disallowance made by the Assessing Officer in view of the fact that the nature of business conducted at these places was not explained by the assessee.

12. As regards disallowance of subsidy amount of Rs.24,77,25,360/-the Ld AR of the assessee explained that the subsidy amount was earlier shown as revenue receipt by the assessee but was later shown as capital receipt and this was amended by assessee through revised computation of income on a simple paper placed on record only on 28.12.2006 i.e. just on the same date when the time barring case was finally discussed. The Ld CIT(A) held that exemption granted to assessee from paying Central Sales Tax, entry tax and electricity duty were of production related incentives and none of the above items tantamount to acquisition of capital asset like land, building, machinery etc. The Ld CIT(A) further relied upon the judgment of Hon'ble Supreme Court of India in the case of Goetze (India) Ltd. (supra) holding that an assessee can claim such items in its return of income only and cannot claim the same during assessment or appeal proceedings. Therefore, this ground of appeal pertaining to subsidy was dismissed.

13. Aggrieved with the order of Ld CIT(A), the revenue as well as the assessee filed cross appeal before this Tribunal.

14. At the outset, the Ld AR of the assessee submitted that all grounds of appeals were covered except the subsidy ground. He further submitted that the assessee had filed request for admission of additional ground of appeal which related to section 115JB of the Act. The Ld AR further submitted that Hon'ble Supreme Court in the recent judgment in the case of Ajanta Pharma Ltd. v. CIT [2010] 327 ITR 305/194 Taxman 358 has held that provision of section 115JB is a self contained code and consequently the book profit under that section has to be computed on the basis of net profit as shown in the audited final statement subject to various upward and downward adjustment as required to be made in terms of various clauses given in explanation (1) to that section. Their Lordships held that even though in terms of sub-section (ib) of section 80HHC for the purpose of computation of income under the normal provision of the Act, deduction of export profit is restricted to the extent specified therein, the said restriction however is not applicable for the purpose of computing book profit. The Ld AR submitted that on the basis of above Supreme Court judgment the assessee has been recently advised that while computing book profit u/s 115JB deduction of 100% of the export profit as calculated in accordance with formula given in sub-section (3) of section 80HHC of the Act is allowable and that is why by way of additional ground the assessee is seeking to raise claim of deduction of export profit allowable in terms of clause (4) of Explanation 1 to section 115JB of the Act while computing book profit taxable under that section. It was further submitted that above additional ground was purely a legal issue which has now been raised on the basis of aforesaid recent judgment of Hon'ble Supreme Court. In view of the above submissions, the following additional grounds were requested to be admitted:—

Continuing his arguments with respect to ground No.1, the Ld AR submitted that the appellant had paid Rs.3,22,125/- as subscription fees to various clubs and it was also reported in tax audit report and Assessing Officer disallowed Rs. 22,125/- out of aforesaid amount on the ground that appellant failed to substantiate the same. The Ld AR submitted that club fees are allowable as business expenditure and lower authorities had failed to appreciate that particulars of club details and payments were duly furnished and since the quantum of payment was very small the evidence in respect of the same were not readily available. Reliance was placed on a number of judgments listed at page 1&2 of chart of issues filed by the assessee.

15. In respect of disallowance of air craft expenses holding them to be for non business purposes, it was submitted that Assessing Officer had disallowed expenditure by submitting that some of the journeys were not made for business purposes. It was also submitted that the above issue sand decided in favour of the appellant by the decision of Delhi Bench 'I of ITAT Delhi in appellant's own case bearing I.T.A. No. 3257/Del/2005 and 3485/Del/2005 for assessment year 2001-02.

16. Regarding third ground of appeal it was submitted by ld AR that Assessing Officer disallowed the whole of the commission amount paid to the aforesaid concern on the basis of disallowance made in respect of assessment year 2003-04. In that year, the disallowance was made alleging that M/s Ganesh Rolling Mills Pvt. Ltd. Hissar was not in existent and it was further submitted that Ld CIT(A) had restored the matter to the office of Assessing Officer for reconsideration in view of additional evidence. On the basis of above facts, it was argued that Ld CIT(A) had thus given a categorical finding regarding existence of Ganesh Rolling Mills Pvt. Ltd. Hissar and as regards two other conditions of services rendered and legitimate business needs, the same was evident from the agreement dated 25.3.2002 which was duly furnished before Assessing Officer. It was further argued that from the contents of said agreement it is apparent that the concern was required to render specific services for which it was to be paid commission. It was also brought to our notice that Assessing Officer had again decided against assessee but Ld CIT(A) in second round of appeal has deleted the same.

17. As regards the ground of appeal regarding subsidy the Ld AR submitted that the subsidy related to exemption from payment of sales tax, entry tax duty and electricity duty Ld CIT(A) did not go to adjudicate on the claim of subsidy because as per him this claim was not made in the original return and the claim was also not made through revised return. In this respect, he argued that Assessing Officer had indeed rejected the claim of assessee on merits and Ld CIT(A) was not justified in dismissing the ground of appeal on the basis that claim was made by appellant merely by filing a revised computation of income. He further submitted that Assessing Officer raised the applicability of decision of Supreme Court in the case of Goetze (India) Ltd. (supra) for the first time in remand reported dated 13.2.2008 and therefore ld CIT(A) should have decided the issue on merits as the issue emanated from the order of Assessing Officer. It was further argued that in the case of Goetze India Ltd. (supra) Supreme Court had held that Assessing Officer is not obliged to entertain claim not made through revised return but same does not impinge the powers of appellate authority. Reliance was placed on the judgments in the following cases:—

18. It was further argued that in the case of Hero Honda Finlease it was held that where the Assessing Officer proceeded to deal with the claim on merits, the Ld CIT(A) could not be precluded from adjudicating the issue despite the claim having not been made by filing revised return.

19. In view of the above, it was argued that Bench should decide the issue on the merits.

20. Continuing his arguments on merits, the Ld AR submitted that the assessee had set up a new industrial unit with initial investment exceeding Rs. 1000 crores at Raigarh which is a backward and a Tribal area of Madhya Pradesh, Govt. of Madhya Pradesh vide notification dated 3.6.1993 had announced certain incentives to be provided to integrated steel plants having investment exceeding Rs. 1000 crores. It was submitted that Govt. of Madhya Pradesh vide notification dated 24.4.2000 exempted the appellant from payment of CST. Similarly, entry tax and electricity duty was also exempted to the assessee. In this respect our attention was invited to paper book pages 23 to 37 where copy of 1993 scheme for integrated steel plant having investment exceeding Rs. 1000 crores were placed. Our attention was also invited to paper book pages 9 to 22 wherein copy of industrial policy and action plan 1994 of Govt. of MP was placed. On the basis of these policy documents, issued by the State Govt. the Ld AR argued that assessee was eligible as per the policy and had received the amount of subsidy in the form of exemption from payment of CST, entry tax and electricity duty. It was further argued that though these payments were received by the assessee after the unit was set up and had started production yet the same were in the nature of capital receipt as the Govt. had exempted/paid these amounts on the basis of specific eligibility of unit having investment of exceeding Rs.1000 crores which was as per industrial policy and action plan 1994. In this respect, the ld AR read out the industrial policy & action plan 1994 as listed at page 11 of paper book and in view of the fact stressed that the receipt of amount was capital receipt and not revenue receipt.

21. The Ld AR further brought to our notice that earlier in the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 (SC) the Hon'ble Supreme court had dealt with similar kind of issue regarding subsidy on account of refund of sales tax on material, subsidy on power consumed and exemption from payment of water etc. wherein the Hon'ble Supreme court had held in favour of revenue holding the receipt of subsidy on revenue account. In this respect pages 317 to 325 of paper book dated 31.7.2009 was referred to wherein complete judgment of Hon'ble Court was placed. The Ld AR further took us to page 324 onwards of the same paper book wherein the Hon'ble Supreme Court in the case of CIT v. Ponni sugars & Chemicals Ltd. [2008] 306 ITR 392/174 Taxman 87 has held in favour of assessee. In this respect para 5 of page 328 and paras 9,12,13,14 & 16 at page 329 were read by Ld AR and in view of the findings of Hon'ble Supreme Court, the Ld AR stressed that Hon'ble Court had over ruled its earlier judgment in Sawhney Steel case and has decided the matter in favour of assessee. Continuing his arguments, the Ld AR submitted that Hon'ble Court had stressed the purpose test for determining the nature of subsidy received by the assessee. Again referring to the industrial policy of Madhya Pradesh, the Ld AR argued that purpose of giving subsidy was overall balance development of State through greater utilization of human and natural resources and was for creation of more direct and indirect employment opportunities and for creation of opportunities to attract new investment in the large and medium sector. In this respect page 7 & 8 of paper book wherein copy of Industrial Policy of Madhya Pradesh was placed was brought to our notice. Keeping in view the objectives of industrial policy it was argued that purpose of industrial policy has to be considered for determining the nature of subsidy received by the assessee and since the purpose of giving subsidy was for industrialization of State with creation of appropriate atmosphere for industrialization, the receipt of subsidy was necessarily a capital receipt specifically keeping in view the judgment of Hon'ble Supreme Court in the case Ponni Sugars & Chemicals Ltd. (supra). He further argued that since the resources of Govt. are scared, therefore various Govts. started giving subsidy in the form of exemption from sales tax, electricity duty and other exemptions instead of cash payments and this system of distributing subsidy also ensured that a person claiming subsidy actually set up the unit and actually put that plant into production. So this way Govt. started saving its scared sources of giving cash on the one hand and on the other hand ensured actual implementation of the project.

22. In this respect reliance was placed on a number of judgments in the following case laws wherein the purpose test was applied to consider the nature of subsidy in the hands of assessee:

Relying upon the above noted cases, the Ld AR submitted that in assessee's case also the objection was that subsidy was received after the unit was set up and therefore it was revenue receipt. Continuing his stress on the purpose test, the Ld AR further submitted that industrial policy of Madhya Pradesh was framed in order to increase employment and for overall growth of State and subsidy in the form of Sales tax exemption etc. were designed to achieve this purpose and therefore applying the purpose test the amount of subsidy can only be said to be capital receipt. He further submitted that Assessing Officer has simply held the nature of subsidy as revenue on the basis that subsidy in the form of non payment of sales tax, entry tax and electricity duty were production related incentives and none of the above items tantamount to acquisition of capital assets. Our attention was also invited to CBDT Circular No.142 dated 1,8.1974 which explains the nature of subsidies and therefore it was pleaded that subsidy was capital in nature.

23. As regards additional ground taken by the assessee, the Ld AR submitted that in view of judgment of Hon'ble Supreme Court in the case of Ajanta Pharma Ltd. (supra), the assessee was eligible for claim of full amount of export profits u/s 80HHC of the Act for determination of profits u/s 115JB of the Income Tax Act, 1961 . Therefore, this additional ground of appeal should be admitted and the Assessing Officer should be directed accordingly for determination of taxable profits u/s 115Jb of the Income Tax Act, 1961.

24. On the other hand, the Ld DR submitted that in respect of first ground of appeal of assessee, the assessee did not submit receipt of Rs. 22,125/- and has simply relied upon the auditor's report. He argued that auditor report was not sufficient to determine as to the authenticity of payment of Rs. 22,125/- and therefore the Assessing Officer had rightly made the addition and Ld CIT(A) had rightly upheld the addition of Rs. 22,125/-.

25. With respect to ground No.2, regarding disallowance of part of air craft expenses amounting to Rs. 5,47,530/-. It was submitted that this disallowance was continuously made from assessment year 2002-03 and was confirmed by the ITAT & ITAT in assessee's own case had allowed the expenses only after determining the same to have been spent for business purposes and had disallowed the portion of expenses which were not incurred for business purposes.

26. With respect of ground No.3, it was submitted that on enquiry it was found that there was no such entity to whom payment of commission was alleged to have been made and assessee did not file any evidence as to what services were rendered by payee. He further argued that Ld CIT(A) has remitted this addition back to Assessing Officer on which both assessee and revenue has filed cross appeal. He further argued that if assessee was not provided sufficient opportunity in one year, what had prevented the assessee to produce payee in next year and in fact the party was non existent. Mere agreement to make payment to a particular person cannot give rise to claim of deduction of the same. In this respect reliance was placed in the case law of Hon'ble Delhi High Court in the case of Schneider Electric India Ltd. v. CIT [2008] 304 ITR 360/171 Taxman 177.

27. Regarding objection to treatment of subsidy as revenue receipt, the ld DR filed written arguments and submitted that different Courts has taken different views regarding nature of subsidy depending upon the facts and circumstances of each case. In respect of reliance put by Ld AR on different case laws, the Ld DR submitted that the judgment in those cases depended upon the facts and circumstances of those cases and cannot be compared with the present case and it was submitted that under the industrial policy subsidy was available to both existing and new units and therefore cannot be said to attract new units only. With respect to Special Bench case in the case of Reliance Industries Ltd. (supra), the Ld DR submitted that Hon'ble High Court's decision has been set aside by Hon'ble Supreme Court. Continuing his arguments the Ld DR submitted that Govt. is making huge amounts for payment of subsidy from tax payers money and they cannot be allowed to go tax free. With respect to case laws of Sahney Steel & Press Works Ltd. and Ponni Sugars Chemicals Ltd. (supra) of Hon'ble Supreme Court the ld DR submitted that Hon'ble Supreme Court had not over ruled the earlier case of Sahney Steel & Press Works Ltd. (supra) rather in the latter case the Hon'ble Court had clarified the purpose test which was capital in nature in that case whereas it was revenue in nature in first case of Sahney Steel & Press Works Ltd. (supra) and therefore these both cases are complimentary to each other. Regarding the case law of Ponni Sugars Chemicals Ltd. (supra) the Ld DR submitted that subsidy in this case was paid for making repayment of loans which is capital in nature whereas in the present case it is against expenses like electricity duty, sales tax which are revenue in nature. He further stressed that the judgment of jurisdictional High Court of Madhya Pradesh in the case of CIT v. Dusad Industries [1986] 162 ITR 784/27 Taxman 4 carry more weight as compared to other High Courts as the assessee's business was in Madhyha Pradesh. He further elaborated that Hon'ble Madhya Pradesh High Court in the said case had held the subsidy to be of capital nature which was reversed by the Hon'ble Supreme Court.

28. Regarding stress of LR AR with respect to industrialization and more employment in the industrial policy of 1994 the ld DR submitted that the broader object of each industrial policy remains the same I.e. industrialization, more employment, overall development of state etc. Moreover, he stressed that assessee had treated the receipt of subsidy as revenue receipt in the books and this fact should also be kept in mind. In this respect, the Ld DR relied upon the following judgments:—

Continuing his arguments he further stressed that sales tax was paid on finished goods and on raw material which was revenue in nature. He further argued that Hon'ble Supreme Court in Sahney Steel & Press Works Ltd. (supra) laid down the following principle which was followed by Hon'ble Supreme Court in its own judgment in Ponni Sugars Chemicals Ltd. (supra), Rajaram Maize Products and Mepco Industries and various High Courts in subsequent decisions and these fundamental principles were not diluted in subsequent decisions and these were explained to be as under:—

In view of the above principles he submitted that in the present case the subsidy was not given to assessee for purchase of capital asset or for setting up of an industrial unit as the same has already been set up. Therefore, the present case is squarely covered by the ratio of decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra). He further argued that assessee has failed to establish on record that in the present case the subsidy was to enable it to carry out capital investment and in the absence thereof it cannot be presumed that such subsidy would be in the nature of capital subsidy. Reliance in this context was placed on the case of law of LG Electronics India (P.) Ltd. v. Addl. CIT [2010] 39 SOT 275 (Delhi). Wherein the Hon'ble ITAT held that subsidy was linked with the production and sales after commencement of business and sales tax subsidy was treated as revenue receipt. Regarding contention of the Ld AR that the issue is covered in favour of assessee by the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd. (supra), the Ld DR argued that it is not correct in view of the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Abishek Industries Ltd. [2006] 286 ITR 1/156 Taxman 257 and he further argued that decision of the Special Bench of the Tribunal was rendered before the decision in the case of Abhishek Industries Ltd. (supra). He further argued that the case of Reliance Industries Ltd. (supra) has now been remitted back by Hon'ble Supreme Court to the Hon'ble High Court for re-adjduication. He further argued that answer to the question whether the receipt of a particular subsidy amounts to a capital receipt or a revenue receipt would depend upon the nature and content of subsidy, the scheme, its objective and the purpose for which the subsidy is granted. Relying upon the judgment in the Mepco Industries Ltd. v. CIT [2009] 319 ITR 208/185 Taxman 409 (SC). The Ld DR argued that one has to examine the nature of item in question which would depend upon the facts of each case. Therefore, in each case one has to examine the nature of subsidy. Relying upon the judgment in the case of CIT v. Grace Paper Industries (P.) Ltd. [1990] 183 ITR 591/52 Taxman 18 the Ld DR submitted that Hon'ble Gujarat High Court has held that subsidy is usually revenue in nature and the assessee has to discharge the onus to prove it to the contrary. Regarding purpose test, the Ld DR submitted that Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) had observed that these subsidies were given to encourage the setting up of Industry in the State of Andhra Pradesh by making the business of production and sales of goods in the State more profitable. Highlighting the importance of judgment of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra), the Ld DR stressed that the judgment has laid down the basic tests to be applied for judging the character of subsidy and 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. He further highlighted that in the present case the assessee was free to use the amount of subsidy in its business as it liked and it was not obliged to spend the money for a particular purpose. He further argued that in the case of Ponny Sugar the Hon'ble Supreme Court had held that the amount of subsidy is of capital nature only because the subsidy was meant for repayment of term loans which were taken by the assessee for setting up of new unit and such repayment of term loans was on capital account whereas in the present case the subsidy is in the form of sales tax exemption, electricity duty exemption etc which were revenue in nature. He further argued that Hon'ble Supreme Court after noting similar scheme where the Hon'ble High Court of Madhya Pradesh had held that the subsidy to be of capital nature in the case of Dusad Industries (supra) had held as under:—

"The Madhya Pradesh High Court, however, failed to notice the significance fact that under the scheme framed by the Govt. No subsidy was given until the time production was actually commenced. Mere setting up of the industry did not qualify for industrialization for getting any subsidy. The subsidy was given as help not for the setting up of the industry which was already there but is an assistance after the industry commenced its production. The view taken by the Hon'ble Madhya Pradesh High Court is erroneous."

29. Regarding reliance of Ld AR in the case of Dy. CIT v. Maruti Suzuki India Ltd. [I.T Appeal No.2188/Del/.2010, the Ld DR submitted that the case law was decided by relying upon the Hon'ble Bombay High Court decision in the case of Reliance Industries Ltd. (supra) and the said judgment has since been set aside by the Hon'ble Apex Court in Civil Appeal No. 7769 of 2011 for reconsideration. Reliance was also placed in the case of CIT v Steel Authority of India Ltd. [2003] 263 ITR 211/133 Taxman 659 (Delhi) wherein Hon'ble Delhi High Court had held that grant received from Govt. not for bringing into existence any new asset but for functioning of the company was revenue in nature and similarly reliance was placed in the case of CIT v. Chinndwara Fuels [2000] 245 ITR 9/[2001] 114 Taxman 707 (Cal.) wherein it was held that since sales tax subsidy was received after the commencement of production, the same could not be treated as capital receipt. In view of the above arguments, the Ld DR submitted that in the present case the subsidy canot be said to be of capital account.

30. In his rejoinder, the Ld AR through written submissions reiterated the arguments made earlier and stressed that the subsidy was received on account of assessee having set up new industrial unit from year 2000 onwards in accordance with the industrial policy of Madhya Pradesh Govt. of Madhya Pradesh had exempted the appellant from payment of sales tax, entry tax and electricity duty. Therefore, the above sales tax/entry tax/electricity duty subsidy was introduced with a view to attract industries to the under developed/backward areas of the State to generate employment and to achieve industrialization and upliftment of backward areas. It was further argued that period/quantum of various concessions were linked to the amount of fresh investment made for the establishment of a new industrial unit and the incentives were to be disbursed after the establishment of the unit. In this respect, our attention was invited to page 35 of paper book wherein notification dated 24.4.2000 was placed and wherein it was mentioned that exemption is being granted to the appellant for setting up of new industrial unit. Similarly, page 39 & 41 of the paper book was brought to our notice wherein notification for waiver of payment of electricity duty and entry tax were placed, in view of the industrial policy and notification, the Ld AR submitted that policy provides the use of taxation as an instrument for increasing employment and developing backward areas. He stressed that purpose of giving subsidy was to overall attract big industrial houses for generating employment, development and for efficient use of human and industrial resources with a view to increase employment and strengthen State infrastructure facilities and therefore the nature of subsidy was of capital. Further reliance was placed on the judgments in the following cases wherein purpose test was applied:—

In rebuttal of Ld DR's contention regarding first contention that the case of the appellant is covered by the decisions of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra), Dusad Industries and Rajaram Maize Products (supra). He submitted that the nature of subsidy is to be determined by applying purpose test laid down by Hon'ble Supreme Court in Sahney Steel & Press Works Ltd. (supra) and reiterated in Ponni Sugars & Chemicals Ltd. (supra) The purpose test to the subsidy received by the appellant has to be applied considering the object given in the applicable policy, scheme, notification issued by the State Govt. It was further submitted that appellant was granted subsidy since the appellant fulfilled the specific criteria of setting up new industrial undertaking for more than Rs.1000 crores and since the purpose for subsidy was to promote industrialization and create employment opportunities and was not to supplement trading receipts of the appellant and therefore it was of capital nature.

31. Regarding contention of Ld DR that subsidy under industrial policy is available to both existing and new undertaking, it was submitted that the concessions were available to existing undertaking only and if they undertake expansion by making fresh investment as prescribed therein and were not available to existing undertaking unless they undertake expansion by making fresh investment upto the prescribed limit. Regarding contention of Ld DR that subsidy was received after start of production, he argued that Hon'ble Supreme Court in a Sahney Steel & Press Works Ltd. (supra) has clearly held that nature/character of subsidy in the hands of appellant has to be determined with reference to the purpose for which subsidy is granted and in the case of Ponni Sugars & Chemicals Ltd. (supra) the Court had observed that point of time at which the subsidy is paid is not relevant. The Ld AR further argued that if the purpose is to help the assessee to set up its business or complete a project, the money must be treated as having been received for a capital purpose. Relying upon Sahney Steel & Press Works Ltd. (supra), the Ld AR submitted that for determining the character of subsidy the test is that the character of the receipt in the hands of assessee has to be determined with respect to the purpose for which the subsidy is given. One has to apply purpose test and the point of time at which the subsidy is paid is not relevant. Further relying upon the case of Sham Lal Bansal (supra) the Ld AR submitted that Hon'ble Court had observed that subsidy received by assessee was of capital receipt and not liable to tax. Similarly, the head notes of various case laws relied by the Ld AR were read and on the basis of the judgments it was argued that the subsidy received in the present case was of capital nature and not liable to tax. He further argued financial statements for the period from 31.3.1999 to 31.3.2004 shows secured borrowings had increased by Rs. 400 croes and though the subsidy scheme had no particular utilization scheme but as a mater of fact the appellant has to utilize the subsidy for repayment of above borrowings and therefore the amount of subsidy can be said to be used for repayment of loan and therefore was of capital receipt. Regarding Ld DR's reliance of Sawhney Steel & Press Works and other decisions the Ld AR submitted that these cases are distinguishable and in those cases after analyzing the purpose of scheme it was held that subsidy granted was revenue receipt.

32. As regards the decision of Hon'ble Madhya Pradesh High Court in the case of Dusad Industries (supra), the Ld AR submitted that the said case relates to assessment year 1979-80 & 1980-81 and in that case the assessee had received subsidy under certain agreements entered into with Govt. of MP and on perusal of relevant clauses of said agreement it can be noted that there is nothing in the said clause to indicate that subsidy was given for industrial development and or for employment generation. Therefore, the case was distinguishable from the present case wherein the purpose of giving subsidy is clearly spelt out in industrial policy. Similarly, it was argued that decision of Hon'ble Madhya Pradesh High Court in the case of Neo Sack Ltd. (supra) and that of Hon'ble Calcutta High Court in the case of Keshoram Industries Ltd. (supra) were distinguishable as in those cases the court had held that subsidy received by the assessee is conditional subsidy on specific facts of those cases. As regards reliance of Ld DR in the case of Rajaram Maize Products (supra) the Ld AR argued that the objective behind the said scheme was to improve efficiency of industry and was not to incentive-wise establishment of industries as in the case of appellant. Regarding contention of Ld DR that various industrial policies issued by State Govt. generally referred to the industrial development of the State and creation of employment. It was submitted that applicable policy/notification clearly spells out grant of taxation incentives for setting up of integral steel plant for industrial development and for generation of employment and it was submitted that there may be scheme where conditional subsidy is granted to the appellant for expansion of unit in the initial year by way of transport subsidy, electricity subsidy etc. and the taxability of subsidy received depend upon the applicable scheme and the purpose laid down therein. In view of the above, it was submitted that the subsidy was granted to the appellant in national interest and for a public purpose to promote industrialization of backward areas, generate employment and overall development of the State of Madhya Pradesh and therefore such subsidy was in the nature of capital receipt not chargeable to tax in the hands of the appellant.

33. Regarding revenue's appeal, the Ld DR conceded that ground No.1 of appeal is covered against revenue and ground No.3 was not pressed being of consequential nature. As regards ground No.4. it was submitted that it is a common ground and has already been argued. In respect of ground No.2 he submitted that this ground is also covered against revenue in the earlier year but argued that facts are different in the present year. Continuing his arguments on this ground, he submitted that there are two agreements placed at paper book page 66 and page 92. He argued that agreement for sale of power to Gujrat, placed at paper book page 92 is relevant for the year. In view of this agreement, the Ld DR argued that excess power was sold to Gujarat Electricity Board and not to Chhatisgarh Electricity Board as in the earlier year. Therefore, the rate at which the power had been supplied was market rate and was rightly taken by Assessing Officer as market rate. He further argued that there is difference between the facts and circumstances of earlier year With respect to present appeal as in the present appeal the power was sold to Gujarat Electricity Board and not to Chattisgarh Electricity Board.

34. In his reply, the Ld AR argued that assessee was not permitted to sell power other than to Electricity Board of state and forced price can never be market price. He further argued that power was sold to Gujarat Electricity Board through a tripartite agreement with Chattisgarh Electricity Board as the main party and assessee had to raise bills to Chhatisgarh Electricity Board and, therefore, there is no cause in the facts and circumstances of the case from earlier year.

35. We have heard the rival submissions of both the parties and have gone through the material available on record. We first deal with the revenue's appeal in I.T.A. No.3319/Del/ 2008. The first ground taken by the revenue's regarding allowing depreciation on WDV method as against straight line method. We find that Assessing Officer had held that the applicant was entitled to depreciation on the basis of straight line method on the basis of assessment for earlier years and for assessment year 2003-04 and Ld CIT(A) following the Hon'ble Tribunal order for assessment year 2000-01 in assessee's own case placed at pages 239 to 285 of paper book had deleted the addition made by the Assessing Officer. The Hon'ble Tribunal at page 272 & 273 observed as under:—

"On consideration of the matter, we find that as per second proviso to rule 5(1A) the assessee may instead of depreciation specified in appendix 1A his option be allowed depreciation under sub rule read with appendix 1A on WDV basis, if such option was exercised by the assessee before the due date for furnishing return of income u/s 139(1) of the Act for assessment year 1998-99 or for the relevant to the previous year in which the assessee begin to generate power whichever is later. It is seen that no particular format or procedure has been laid down in the second proviso in relation to exercise of option by an assessee. Second proviso only says that option is to be exercised before the due date for furnishing return of income u/s 139(1) for the assessment year 1998-99 in respect of generating undertaking then existing and for the first Assessment year in which a new undertaking begins to generate power. The case of the assessee is that it begin to generate power during the previous year relevant to assessment year 1999-00. As per annexure D enclosed to the computation of income chargeable to tax filed along with the return of income for assessment year 1999-00, the assessee had claimed depreciation in accordance with sub rule 1 read with appendix -1." Therefore, the assessee's return of income was processed u/s 143(1) on 29.9.2008 no adjustment in this behalf was made by the Assessing Officer. Under sub rule (1) of Rule 5 read with appendix-I as noted earlier the provisions of Income Tax Rules, 1962 has not laid down any particular procedure for exercise of option by the assessee. That being so the assessee could find the occasion to exercise his option while filing the return of income for assessment year 1999-00. We, therefore, allow assessee's ground of appeal No.2 and direct the Assessing Officer to allow depreciation as admissible to the assessee."

36. We further find that the aforesaid decision has been followed by the Tribunal in appellant's own case for assessment year 2001-02 in I.T.A. No.3257/Del/2005 (relevant pages 307 & 308 of paper book).

Further we notice that department's appeal against the said order of the Tribunal has been dismissed by Hon'ble Punjab & Haryana High Court vide order dated 2.9.2008 for assessment year 2000-01 and for assessment year 2001-02(relevant orders are placed at paper book pages 43-46. Following the above, we find that facts and circumstances of the case remains same, therefore, we dismiss the first ground of revenue's appeal.

37. The second ground of revenue's appeal relates to deduction u/s 80IA of the Act. We find that Ld CIT(A) had deleted the disallowance following the decision of Delhi Bench of the Tribunal in appellant's own case in I.T.A. No.3257/Del/2005 for assessment year 2001-02 placed at paper book pages 268 to 308 and further we find that department's appeal against the said order of the Tribunal has been dismissed by Hon'ble Punjab & Haryana High Court vide order dated 2.9.2008 for assessment year 2000-01 & 2001-02. The facts and circumstances though claimed to be different by DR but factually they are same as though the power was sold to Gujarat Electricity Board but the assessee was bound by tripartite agreement pf State Electricity Board and assessee had to raise invoices against Chattisgarh Electricity Board and was entitled to receive payment from the same. So literally the power was being sold to Chattisgarh Electricity Board as in the earlier year. Therefore, there is no change in the facts and circumstances of the present appeal with the earlier year and following the earlier year order, we dismiss the second ground of revenue's appeal.
38. The third ground of revenue's appeal relates to direction by Ld CIT(A) to Assessing Officer to recompute deduction u/s 80HHC of the Act after taking into account of all disallowances upheld/relief granted by ld CIT(A). We do not find any force in this ground of appeal as the Assessing Officer is duty bound to recompute the deduction u/s 80HHC after taking into account all disallowances upheld/relief granted by Ld CIT(A). Therefore, we dismiss the third ground of revenue's appeal.
39. The fourth ground of revenue's appeal relates to grievance of revenue for setting aside of the issue regarding commission paid to M/s Sri Ganesh Steel Rolling Mills. This ground of appeal has also been taken by the assessee vide ground No.3 of the appeal. The appellant had paid commission charges amounting to Rs. 1,09,310/- to M/s Ganesh Steel Rolling Mills India Ltd. and the Assessing Officer on the basis of earlier year disallowance had made the disallowance this year also on the basis of finding by Assessing Officer that the payee was not in existence. On appeal, the Ld CIT(A) had remitted the matter back to the Assessing Officer for reconsideration of the claim of assessee with respect to identity of payee, services rendered by the recipient and the legitimate business needs of the appellant.

40. The Ld AR had submitted that the Assessing Officer again disallowed the same. However, Ld CIT(A) in second round of appeal has allowed the same. We find that Ld CIT(A)'s finding prima facie establishes the existence of the payee and also the payments were made in view of agreement dated 25.3.2002 which was duly furnished before Assessing Officer and the terms and conditions of agreement duly spelt out the services to be rendered by payee and commission to be paid to it. The concern was registered with the Sales Tax Department and was liable to pay local taxes and we are of the considered opinion that the assessee had discharged its onus of proving regarding genuineness of transaction, identity of payee and services rendered by the payee and therefore, we are of the considered opinion that payment was for legitimate business purposes and therefore we dismiss ground No.4 of revenue's appeal and consequently allow ground No.3 of assessee's appeal.

41. In view of the above, the appeal filed by the revenue is dismissed.
42. Now we take up the appeal filed by the assessee in I.T.A. No. 3254/Del/2008. The first ground taken by the assessee is regarding disallowance of Rs. 22,125/- claimed by the assessee as part of club fee. The Assessing Officer had disallowed the amount on account of non production of any supporting documents. The assessee even did not file any evidence before the Ld CIT(A) and therefore Ld CIT(A) upheld the addition made by the Assessing Officer. The assessee's argument that club fee was a business expenditure cannot be denied but the assessee did not produce any evidence in respect of payment before lower authorities or before us. Therefore, we are not inclined to accept ground No.1 of the assessee's appeal we dismiss the same.

43. The second ground of assessee's appeal relates to disallowance of air craft expenditure amounting to Rs. 5,47,530/- which was alleged to have been spent for non business purposes.

44. The Ld AR had relied upon the order of Hon'ble Tribunal in assessee's own case in I.T.A. No.3257/Del/2005 for assessment year 2001-02 wherein the Tribunal had held that expenditure relatable to trips made for non business purposes could only be disallowed by the Department. From the order of Tribunal in assessee's own case placed at paper book page 286 onwards we find that the matter has been discussed by the Tribunal at page 304. The Hon'ble Tribunal had held that the case of the assessee could not be shut out in its entirety and it observed that in relation to trips to Delhi, Tirupati, Ghana no purpose has been stated by the assessee even in the details filed before them. Therefore, the disallowance to that extent was justified and as regards expenses on trips to other places where assessee was able to explain the purpose of visits, the Tribunal had allowed the same to have been incurred for business purposes. However, in the present case, the Assessing Officer had specifically pointed out journeys undertaken by the assessee which were not for business purposes and assessee neither before the Assessing Officer nor before Ld CIT(A) was able to produce any evidence to claim that air journeys performed in respect of places noted in the assessment order were undertaken for business purposes. Therefore, the facts of assessment year 2001-02 where Hon'ble Tribunal had allowed the expenses on air craft on the basis of facts and circumstances of that year are not similar to this year where the assessee had not explained the purpose of these visits whereas in assessment year 2001-02 the same were explained fully. Even before us, the Ld AR has submitted that purpose was for visit to customers but did not elaborate specifically as elaborated in the assessment year 2001-02. Therefore, we do not agree with Ld AR's contention that issue was covered by the earlier order of assessment year 2001-02. We dismiss ground No.2 of assessee's appeal.

45. Ground No.3 of assessee's appeal stands already adjudicated in revenue's appeal as ground No.4 and has been decided in favour of assessee. Therefore, ground No.3 is allowed.

46. Ground No.4 of assessee's appeal relates to taxability of subsidy received by the appellant on account of exemption from sales tax, entry tax and electricity duty. The appellant had set up during the period 2000 - 04 industrial unit which has enabled it to avail exemption in respect of payment of Central sales tax, entry tax and electricity duty. The assessee had earlier declared the receipt of subsidy as a revenue receipt but during assessment proceedings, the said amount was claimed as not taxable being in the nature of capital receipt and this was claimed by filing a revised computation of total income. The Assessing Officer disallowed the claim of appellant holding that the subsidy received by the assessee was in the shape of incentives/Govt. grant and was in the nature of revenue receipt. The Assessing Officer also rejected the contention of assessee that the matter of receipt of subsidy was covered by the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd. (supra) considering it as non binding being a case of non territorial bench. The ld CIT(A) without going into the merits of the issue sustained the aforesaid disallowance holding that the claim was made by appellant merely by filing of revised computation of total income and not by revising the Income tax return for the captioned assessment year and same was not admissible in view of the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra).

47. Before us, the Ld AR contended that Assessing Officer had raised the issue of applicability of decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) for the first time in remand report dated 13.3.2008 filed during appellate proceedings. It was also submitted that in the same case though it was held that the Assessing Officer was not obliged to entertain claim not made through the revised return but it was also clarified that same does not impinge on the powers of appellate authority to entertain an additional ground of appeal. Therefore, relying upon a number of case laws it was argued that Ld CIT(A) ought to have entertained the claim treating the same as in the nature of additional ground of appeal.

48. In view of judicial pronouncements relied it was prayed that appellant's grounds challenging the taxation of subsidy may be considered and decided on merits. Regarding merits of the case, it was argued at length both by Ld AR & Ld DR regarding taxability of subsidy amount. Ld AR had put reliance on a number of judgments including the judgment in Sahney Steel & Press Works Ltd. (supra) & Ponni Sugars & Chemicals Ltd. (supra) both decided by Hon'ble Supreme Court and further it relied on the purpose test for determining the nature of subsidy. Besides reliance on the above two judgments of Hon'ble Supreme Court further reliance was placed by Ld AR as well as by Ld DR on a number of judgments where different Courts and Tribunal have held that the nature of subsidy to be of capital nature or revenue nature depending upon the facts and circumstances of each case. However, we find that the issue has been explained in detail in the Apex Court judgment of Sahney Steel & Press Works Ltd. (supra) and Ponni Sugars & Chemicals Ltd. (supra) wherein the Hon'ble Court had taken opposite views in view of different facts and circumstances of both cases. The case law of Sahney Steel & Press Works Ltd. (supra) squarely covers the facts and circumstances of the present case. The facts of Sawhney Steel & Press Works are that whether subsidy received by the assessee company was taxable as revenue receipt or not. As per notification issued by Andhra Pradesh Govt. certain facilities and incentives were to be given to all new industrial undertakings which commenced production on or after 1.1.1969 with capital investment not exceeding Rs. 5 crores and the incentives were to be allowed for a period of five years from the date of commencement of production and incentive was in the form of refund of sales tax on raw material, machinery and finished goods subject to maximum of 10% of equity capital paid up in the case of public limited company and actual capital in the case of other. The incentives were also to be paid in the form of subsidy on power consumed for production and also exemption was to be given for payment of water charges. The incentive scheme was for setting up new industrial undertaking in the State and also for the purpose of stimulating special expansion of the industry. The primary object was rapid industrialization of the State and this object was sought to be achieved by various incentives. It was contended there that since subsidy was calculated on the basis of quantum of investment in capital, such subsidy cannot be considered to have been received by the assessee on revenue account. The Hon'ble Apex Court held:

"That contention of assessee that subsidies were of capital nature and were given for the purpose of stimulating the setting up and expansion of industries in the State cannot be upheld because of the subsidy scheme itself as no financial assistance was granted to the assessee for setting up of the industry. It is only when the assessee had set up its industry and commenced production and various incentives were given for the limited period of five years."

Therefore, the Hon'ble Court held that purpose of the State was to provide the newly set up industry helping hand for five years to enable them to be viable and competitive and it was further held that sales tax refund and the relief on account of water tax, land revenue as well as electricity charges were intended to enable the assessee to run the business more profitably. It was further held by Hon'ble Court that payments were made only after the industries have been set up and therefore payments were not made for the purpose of setting up of the industries but the package of incentives were given to the industry to run more profitably for a period of five years from the date of commencement of production. The Court further held that payments were nothing but supplementary trade receipts and assessee was free to use the money in its business entirely as it likes and was not obliged to spend the money for a particular purpose. It was further held that by no stretch of imagination the subsidy by way of refund of sales tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. It was held that character of the subsidy in the hands of recipients whether revenue or capital will have to be determined by having regard to the purpose for which the subsidy was given and if it was given by way of assistance to the assessee in carrying on his trade or business it has to be treated as trading receipt and if the refund of sales tax on purchase of machinery as well as on raw material is given to enable the assessee to acquire new plant & machinery for further expansion of its manufacturing capacity the entire subsidy must be held to be a capital receipt in the hands of the assessee. The Hon'ble Court further held that subsidies were not granted for production or bringing into in existence any new asset and the same were granted year after year only after setting up of new industry and commencement of production and such subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee and held that these subsidies were of revenue character and were liable to tax.

49. The facts and circumstances of the present case are similar to the facts and circumstances of Sahney Steel & Press Works Ltd. (supra) wherein the Govt. of Madhya Pradesh with a view to industrialize the State and utilize the human resources with an aim to increase employment had provided subsidies in the form of sales tax exemption, electricity duty and entry tax to the assessee for having made investment for a minimum amount of Rs. 1000 crores. The purpose of Andhra Pradesh Govt. and Madhya Pradesh Govt. were broadly same i.e. industrialization and consequent increase in employment opportunities. The Ld AR's argument that purpose test has to be applied in view of the objectives of the scheme is correct as in both the policies of Andhra Pradesh & Madhya Pradesh, the macro purpose was industrialization, increase in employment and better utilization of human and state resources. Therefore, the facts and circumstances of Sawhney's case and present case are similar. The Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) has clearly held that refund of sales tax or relief of electricity charges cannot be treated as an aid to setting up of an industry of the assessee and therefore cannot be said to be of capital receipt. The argument of Ld AR that the industrial policy of Madhya Pradesh Govt. had tried to use taxation as an instrument for increase in employment, developing scenario linkages between different sector is correct to the extent that State Govt. had used sales tax exemption as a policy to achieve these objectives and taxation of subsidy under Income Tax Act cannot be intended to be used for the same as this is not a state subject. The Ld AR had further argued that Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra) had overruled its own judgment in the case of Sahney Steel & Press Works Ltd. (supra) which is not correct because in the latter case the amount of subsidy was not available to the assessee for use in any way as it liked but it was specifically paid to the assessee for repayment of outstanding loans. The benefits of the scheme had to b e utilized only for repayment of loans which were taken by the assessee to set up new unit or for substantial expansion of an existing unit. From the analysis of both judgments of Hon'ble Supreme Court it can be concluded that both judgments are not contrary to each other and rather they are complimentary to each other. In the former case the Hon'ble Supreme Court had decided the nature of subsidy depending upon the purpose for which it was paid it was held to be on revenue account in the form of sales tax exemption, water tax exemption etc. whereas in the latter case the subsidy was paid for repayment of outstanding loans which were capital in nature Therefore, keeping in view the purpose test which was for repayment of loans a capital receipt the Hon'ble Court had held it to be capital receipt. The assessee had relied upon a number of judgments given by lower courts which has considered subsidy as capital receipt by applying purpose test but the facts and circumstances of each and every case are different from the facts and circumstances of the present case which are squarely covered by the judgment of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra). The case laws relied upon by the assessee are discussed as under:—

50. Rasoi Ltd. (supra).
The object of the subsidy in this case was expansion of business capacities, modernization and marketing and capability of these were assistance on capital amount whereas the facts and circumstances of the present case are totally different.
51. Shree Balaji Alloys (supra).

The subsidy in the form of excise duty refund and interest subsidies were given in view of Special package for J&K by Central Govt. in public interest in view of specific problems of un-employment in the State and for acceleration of industrial development which had lagged behind. The Hon'ble Court had held that incentives were provided to eradicate social problems of un-employment and were held to be in public interest and therefore were held to be capital in nature. The facts and circumstances of the present case are not similar as in the present case, incentives were provided under normal industrial policy of State Govt. and facts of present case are directly similar to facts and circumstances in Sahney Steel & Press Works Ltd. (supra) as decided by the Hon'ble Apex Court.

52. Siya Ram Garg (HUF) (supra)
In this case the subsidy was received by the assessee for setting up agro base industrial unit in a backward area and was determined with reference to capital investment which is not the case in the present appeal.
53. Bhushan Steel & Strips Ltd. (supra).

In this case the UP Govt. quantified the amount of subsidy relatable to capital invested and instead of paying in cash exempted the assessee from paying sales tax collected to the extent of quantified amount of subsidy. Therefore, the facts and circumstances of the present case are distinguishable.

54. Sham Lal Bansal (supra).

The subsidy in this case was received by the assessee under the Technology Up-gradation Fund Scheme of Ministry of Textiles, Govt. of India. The subsidy was received for re-payment of loan taken for building, plant & machinery etc. and therefore Hon'ble Court had rightly held it to be capital subsidy applying the Hon'ble Supreme Court's judgment in the Ponni Sugars & Chemicals Ltd. (supra).

55. Maruti Suzuki of India Ltd. (supra).

In this case the subsidy was also in the form of sales tax exemption and Hon'ble Tribunal had held the receipt to be capital receipt, keeping in view the provisions of section 28A of Haryana General Sales Tax Act, 1973 which is not the case in the present appeal. Moreover, the case was decided after taking into account the judgment in the Special Bench case in the case of Reliance Industries Ltd. (supra) which has now been remitted back by Hon'ble Supreme Court to High Court for re-consideration. The facts and circumstances of present appeal are similar to the facts and circumstances of Sahney Steel & Press Works Ltd. (supra) which has been adjudicated by the Apex Court.

56. Indo Rama Textiles Ltd. (supra)

In this case the Hon'ble Tribunbal has held the subsidy on account of sales tax exemption to be of capital in nature relying upon the case law of Reliance Industries Ltd. (supra) which itself has been remitted back by Hon'ble Supreme Court to Hon'ble High Court for reconsideration.

57. As regards reliance of Ld AR on Circular No.142 dated 1.8,1974, it is observed that the circular was in respect of 10% Central outright grant of subsidy for industrial units to be set up in certain selected backward areas and it was specifically intended to be contribution towards capital outlay of industrial unit which is not the case in the present appeal.

58. The Ld AR also argued that assessee had created fixed assets with the help of huge borrowings and these borrowings in any case will have to be repaid over a period of time and assessee will utilize amount of subsidies for repayment of loans and therefore same should be treated as capital receipt but we are not in agreement with Ld AR as his argument is based upon hypothesis only. What is important to be seen is whether assessee was bound to utilize the amount of subsidy for repayment of loan or not which in the present case is No. Therefore, this argument cannot be accepted.

59. After analyzing the facts and circumstances of the above noted cases, viz-a-viz facts and circumstances of the present case and that of Sawhney Steel's case, we find that the most appropriate Case law which fits into the facts and circumstances of the present case are that of Sahney Steel & Press Works Ltd. (supra), therefore, we hold that the amount of subsidy was revenue in nature. Therefore, this ground of appeal of assessee is dismissed.

60. Ground No.6 of appeal of assessee regarding charging of interest u/s 234 B is also dismissed as provisions of section 234 B are mandatory and consequential.

61. As regards additional ground taken by the assessee during appellate proceedings regarding calculation of tax payable u/s 115JB of the Act. We find that Hon'ble Court in the case of Ajanta Pharma Ltd. (supra) has held that provisions of section 115JB of the Act was a self contained code and consequently book profit under that section has to be calculated after allowing 100% of export profit as calculated in accordance with formula given in sub section (3) of section 80HHC of the Act. The additional ground taken by Ld AR being legal in nature, and the judgment of Hon'ble Supreme Court was delivered after filing of appeal by assessee. Therefore, in the interest of justice, we admit the same and direct the Assessing Officer to recalculate the book profit u/s 115JB after allowing 100% of export profit as calculated in accordance with the provisions of section 80HHC of the Act.

62. In view of the above, the additional ground taken by the assessee is admitted and allowed.

63. In the result, the appeal filed by the assessee is partly allowed.