Maa Durga Industries,, Udhampur vs Department Of Income Tax

Income-tax Officer, vs. M/s. Maa Durga Industries, Udhampur. Battal Ballian, Udhampur. At present- Sundar Mohalla Chandausi (U.P.) (Appellant) (Respondent)

Appellant by : Smt. Ratinder Kaur, D.R. Respondent by : Sh. P.N. Arora, Advocate

Date of hearing : 13.01.2015 Date of pronouncement : 13.01.2015

ORDER PER A.D. JAIN, J.M.

This is department's appeal for assessment year 2009-10 against

the order dated 06.03.2014 passed by learned CIT(A), Jammu.

2. The ld. Counsel for the assessee has filed an application for

adjournment, contending therein that he has not been able to collect

necessary information from his client. We, however, find that all

necessary information required is on record. The matter can be

proceeded with as such. Theerefore, the application for adjournment is

rejected.

2 ITA No. 337(Asr)/2014

3. The department has taken the following grounds of appeal :

"1. Whether the Commissioner of Income Tax (Appeals), Jammu was right in law to allow deduction u/s. 80IB of the Income Tax Act, 1961 on Central Excise Duty refund by relying upon the judgment of the Hon'ble High Court of J&K, in the case of M/s. Shree Balaji Alloys & others & ignoring the ratio of the law on the issue as laid down in the case of Ponni Sugar & Sawhney Steel and Press Works Ltd.

2. Whether the Commissioner of Income Tax (Appeals), Jammu committed an error in law in not following the law as laid down by the Hon'ble Supreme Court in the case of Ponni Sugar & Sawhney Steel and Press Works Ltd., wherein similar receipts were held to be revenue in nature as the same had been made after the industries had been set up and not for the purpose of setting up of the industries.

3. Whether the Commissioner of Income Tax (Appeals), Jammu was right in not appreciating and applying the purpose test as laid down by the judgment of the Hon'ble Supreme Court, in the case of assessee, as the money received by the assessee on account of Central Excise was not supposed to be spent in a particular manner or for the purpose of substantial expansion of the industry."

4. The facts are that the assessee firm, for the year under

consideration, claimed deduction of Rs.13,57,481/- u/s. 80IB of the

Income-tax Act in respect of Excise Duty refund. The AO, vide order

dated 24.11.2011, rejected this claim as not an allowable deduction. It

was observed that similar deduction claimed by the assessee in the two

immediately preceding assessment years had also been disallowed. It

was also observed that in "Shree Balaji Alloys & others vs. CIT &

another", 333 ITR 335 (J&K), rendered by the Hon'ble jurisdictional 3 ITA No. 337(Asr)/2014

High Court, this issue has been decided against the department, but the

department, having not accepted the said decision, has filed SLPs

before the Hon'ble Supreme Court.

5. By virtue of the impugned order, following the decision in the

case of "Shree Balaji Alloys"(supra), the ld. CIT(A) deleted the

disallowance, observing as follows :

"4. Determination Ground of Appeal No. 1 to 5 relate to addition on account of disallowance of claim of deduction of excise duty refund u/s 80IB for Rs.13,57,481/-.

Concerning profit and gains derived from industrial undertaking, the excise duty refund does not qualify for such profit and gains in view of ratio of judgment of the Apex Court in the case of Liberty India vs. CIT, 317 ITR 218 which clarified that in such receipts there is no first degree nexus with the manufacturing of industrial undertaking. However, the Hon'ble J & K High Court in the case of Shri Balaji Alloys & Others vs. CIT has held that excise duty refund and interest subsidy are capital receipts.

The appellant has placed its reliance on this decision of Shri Balaji Alloys and Others vs. CIT 333 ITR 335, where it has been held that excise duty refund and interest subsidy in pursuance to the incentive allowance by the government pertaining to industrial policy introduced in the State of J & K are capital receipt.

In the judgment the Hon. J & K High Court has observed in the case of Shree Balaji Alloys vs. CIT that the excise refund is a capital receipt in the hands of the assesee.This judgment holding capital receipt is based on the fact that the excise refund would facilitate the employment in the backward area and setting up of new industry as well. With due respect to the judgment of Hon'ble J & K High Court, to my understanding this decision is in contradiction to the principles laid down by the Supreme Court in Sahney Steel 4 ITA No. 337(Asr)/2014

case and Raja Ram Maize product case decided by the Hon. Supreme Court. In my humble view for the following reasons the refund of excise does not appear to be of capital nature.

(i) The excise duty is leviable once the industry is established and start production and not prior to its setting up. Thus it has no role in establishing an infrastructure.

(ii) As and when manufacturing takes place and is sold in the market the incidence of excise duty ad sales tax arises respectively. Thus it is linked with day to day operation of the industry.

(iii) This is not a one time phenomena but a recurring phenomena which is linked with quantity of goods manufactured and sold. The incentive/subsidy is given for 10 yrs which suggest that this is to assist the sustenance of the industry in competition rather than setting up of the industry.

(iv) The receipt of the excise duty refund is accounted for by the appellant as revenue receipt in acordance with the accountig standards.

(v) The fact that excise duty is claimed as deduction expenditure in profit and loss account as expenditure, itself clarifies of being revenue in nature.

(vi) In the case of Liberty India the Hon. Supreme Court has held that incentive and other assistance from the Central Gvernment in terms of DEPB and duty draw back are not the profits arising out of industrial undertaking.There is no first degree nexus between the profit and running of the industry.

This is an incentive under the Government scheme and therefore cannot claimed as exempt under section 80IA. Since the Hon'ble H.C. of J&K has referred to the cases of M/s. Sahney Steel Press Wroks Ltd., Ponni Sugars and M/s. Mepco Industries Ltd in their judgment in the case of Shree Balaji Alloys vs. CIT before arriving at the conclusion that excise duty refund is capital in nature and also subsequently rejected the miscellaneous petition of the department for reconsidertion, the issue stand settled till a contrary judgment is pronounced by the Apex Court. The jurisdictional bench of Hon'ble ITAT Amritsar is invariably following the said decision of Hon'ble HC of J&K in favour of assessee despite having contrary view in the matter erlier 5 ITA No. 337(Asr)/2014

i.e., before the decision of the Hon'ble J&K High Court. In view of judicial discipline despite having differences in my interpretation vis-à-vis that of the Hon'ble HC of J&K on the issue, I respectfully following the judgment of the jurisdiction HC of J & K allow this ground of appeal."

6. Aggrieved, the department is in appeal before us.

7. Challenging the impugned order, the ld. DR has contended that

the ld. CIT(A) has erred in allowing deduction u/s. 80IB of the Income

Tax Act, 1961 on Central Excise Duty refund by relying on the

judgment of the Hon'ble High Court of J&K, in the case of "M/s. Shree

Balaji Alloys & others" (supra); that the ld. CIT(A) has erred in not

following the law as laid down by the Hon'ble Supreme Court in the

case of "CIT vs. Ponni Sugar", 306 ITR 392(SC) & Sahney Steel and

Press Works Ltd. vs. CIT", 228 ITR 253 (SC), wherein similar receipts

were held to be revenue in nature as the same had been made after the

industries had been set up and not for the purpose of setting up of the

industries; and that the ld. CIT(A) has erred in not appreciating and

applying the purpose test as laid down by the judgment of the Hon'ble

Supreme Court, in the case of assessee, as the money received by the

assessee on account of Central Excise was not supposed to be spent in

a particular manner, or for the purpose of substantial expansion of the

industry.

8. Per contra, the ld. Counsel for the assessee has placed strong 6 ITA No. 337(Asr)/2014

reliance on the impugned order and has brought to our notice the

decision of the Hon'ble jurisdictional High Court in "Shree Balaji

Alloys" (supra), which decision has been followed by the ld. CIT(A)

for deleting the disallowance.

9. We have heard the parties and have perused the material on

record.

10. The sole reason for the ld. CIT(A) to delete the addition made by

the AO was the decision in "Shree Balaji Alloys"(supra), wherein it has

been held that the purpose of the incentive scheme formulated by the

Central Government for Jammu & Kashmir is to accelerate the

industrial development, generate employment and create opportunities

for self employment; that this purpose is in public interest; and that the

excise dut y refund and interest subsidy concerned therewith is a capital

receipt. It remains undisputed that the decision in the case of "Shree

Balaji Alloys"(supra), is a decision rendered by the Hon'ble J&K High

Court, which is the jurisdictional High Court qua the assesee. Now, the

main grievance raised by the department is that while following the

decision in the case of "Shree Balaji Alloys"(supra), the ld. CIT(A) has

failed to take into consideration the Supreme Court decisions in the

cases of "Ponni Sugars & Chemicals Ltd."(supra), and "Sawhne y 7 ITA No. 337(Asr)/2014 Steels & Press Works Ltd."(supra). However, a perusal of decision in

the case of "Shree Balaji Alloys"(supra) shows that this judgment has

been passed after duly taking into consideration both the above

judgments of the Hon'ble Supreme Court, i.e., "Ponni Sugars &

Chemicals Ltd." and "Sawhney Steels & Press Works Ltd." Moreover,

in "Mepco Industries Ltd. vs. CIT", 319 ITR 208 (SC) also, both these

decisions of the Hon'ble Supreme Court were considered while

deciding the issue in favour of the assessee. This has also been taken

into consideration by us in "ITO, Ward-3, Pathankot vs. M/s. T.K.

Paper Mills, Chack Sakta, Kathua, H.O. Pathankot", an order dated

05.08.2014, passed in ITA No. 106(Asr)/2014 for assesment year 2010-

11 and in "Dy. CIT, Jammu vs. M/s. Narbada Steel Ltd., Sidco

Industrial Complex, Bari Brahmana, Jammu", an order dated

12.01.2015, passed in ITA No. 280(Asr)/2014 for the assessment year

2010-11.

11. Further, the decision of the Hon'ble jurisdictional High Court in

the case of "Shree Balaji Alloys"(supra) has not been shown to have

been set aside or stayed by the Hon'ble Supreme Court and mere filing

of SLP is of no help to the department.

12. In view of the above discussion, finding no error therein, the well 8 ITA No. 337(Asr)/2014

reasoned order of the ld. CIT(A) is hereby confirmed, rejecting the

grounds taken by the department, which are found to be shorn of merit.

13. In the result, the appeal filed by the department is dismissed.

Order pronounced in the open court on 13 t h January, 2015.

Sd/- Sd/- (B.P. JAIN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 13th January, 2015 *aks/- Copy of the order forwarded to: 1. The Assessee 2. Assessing Officer 3. The CIT(A), 4. The CIT, 5. The SR DR, I.T.A.T.,Amritsar

True copy By order

(Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.