Narbada Steel Limited, Jammu vs Department Of Income Tax

Dy. C.I.T., Circle 1, vs. M/s. Narbada Steel Ltd., Jammu. Sidco Industrial Complex, Bari Brahmana, Jammu. (Appellant) (Respondent)

Appellant by : Sh. Virender Kumar Singh, D.R. Respondent by : Sh. P.N. Arora, Advocate

Date of hearing : 12.01.2015 Date of pronouncement : 12.01.2015

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

This is department's appeal for assessment year 2010-11 against

the order dated 09.12.2013 passed by learned CIT(A)-I, Ludhiana. The

department has taken the following grounds of appeal :

"1. Whether the Commissioner of Income Tax (Appeals)-I, Ludhiana 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)- I, Ludhiana 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 2 ITA No. 280(Asr)/2014

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)- I, Ludhiana 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."

2. The facts as per the record are that the AO obsered that the

assessee had received Excise Duty refund and interet subsidy and the

same had been treated as Revenue Receipts in the assesee's books of

account. However, on 28.03.2012, the assessee revised its return of

income treating the said receipts as capital receipts. On query by the

AO, the assessee submitted that it had capitalized an amount of

Rs.2,45,23,504/- on account of Excise Duty refund and had also treated

an amount of Rs.3,30,793/- as capital receipt on account of interest

subsidy earlier credited to the Profit & Loss Account. It was submitted

that the return for the assessment year under consideration had been

revised in accordance with the judgment of the Hon'ble J&K High

Court in the case of "Balaji Alloys Kathua", 333 ITR 335 (J&K),

wherein the J&K High Court held that excise duty and interet subsidy

are capital receipts and not revenue receipts. It was further submitted

that as the amount was being paid/refunded for the purpose of

development of industry in backward areas, the assessee had treated it 3 ITA No. 280(Asr)/2014

as capital receipt.

3. The AO, however, did not agree with the aforesaid stand taken by

the assessee. Referring to the decision in "CIT vs. Sterling Foods", 237

ITR 579 (SC), and observing that the decision of the Hon'ble J&K

High Court in the case of "Shree Balaji Alloys"(supra), had not been

accepted by the department and an SLP had been filed in the Hon'ble

Supreme Court, the AO treated the receipts on account of excise dut y

refund as well as interest subsidy as revenue receipts on the basis of

the decision of the Supreme Court in the case of "Libert y India vs.

CIT", 2009-TIOL-100-IT-SC. It was as such that the AO made addition

of Rs.22,45,23,504/- rerpresenting excise duty refund and of

Rs.3,30,793/-, representing interest subsidy, treating both these

receipts as revenue receipts.

4. By virtue of the impugned order, the ld. CIT(A) deleted both the

additions made by the AO. In doing so, the ld. CIT(A) followed the

decision in the case of "Shree Balaji Alloys"(supra). Aggrieved, the

department is in appeal before us.

5. Challenging the impugned order, the ld. DR has contended before

us that the ld. CIT(A) has erred in allowing deduction u/s.80IB of the 4 ITA No. 280(Asr)/2014 Income-tax Act by wrongly deleting the additions rightly made by the

AO; that while doing so, the ld.CIT(A) has erroneously relied upon the

decision in "Shree Balaji Alloys"(supra); that in doing so, the ld.

CIT(A) has erred in ignoring the decisions of Hon'ble Supreme Court

in the cases of "Ponni Sugars & Chemicals Ltd.", 306 ITR 392(SC) and

"Sawhney Steels & Press Works Ltd.", 228 ITR 253(SC), wherein,

receipts similar to the ones in question in the present case were held to

be revenue receipts, since 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) failed to appreciate and apply the purpose test

as laid down by Hon'ble Supreme Court, despite the fact that the

money received by the assesee on accout of central excise refund was

not supposed to be spent in a particular manner, or for the purpose of

substantial expansion of the industry. It has also been contended that

the ld.CIT(A) has failed to take into account the specific observation of

the AO that the decision of the Hon'ble J&K High Court in the case of

"Shree Balaji Alloys"(supra) has not been accepted by the department

and the department is in appeal there-against before the Hon'ble

Supreme Court.

6. The ld. Counsel for the assessee, on the other hand, has placed

reliance on the impugned order. It has been contended that the ld. 5 ITA No. 280(Asr)/2014

CIT(A) cannot at all be faulted for having followed the decision in the

case of "Shree Balaji Alloys"(supra), since the said decision has been

rendered by the jurisdictional High Court so far as regards the assesee

and that it is well settled that all Authorities subordinate to a particular

High Court are governed by the decisions rendered by such

jurisdictional High Court.

7. Having considered the rival contentions in the light of the

material placed before us, we find that the ld. CIT(A), while deleting

the additions made by the AO, has observed as follows :

"5. I have considered the basis of addition made by the Assessing Officer and the arguments of the AR on the issue. It is clear that the decision of Hon'ble jurisdicitional High Court is directly on the issue and in view of the same, the said excise duty refund and interest refund are to be treated as capital in nature until and unless the said decision of the Hon'ble Court is reversed by the Apex Court in the SLP filed by the Department.The decision of the Hon'ble jurisdicional High Court is binding on all the authorities below and the act of filing an SLP does not mean that there would be stay against the order of the jurisdictional High Court on the issue. In view of the above, the addition made by the Assessing Officer is directed to be deleted."

8. From the above, it is evident that the sole reason for the ld.

CIT(A) to delete the additions 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 6 ITA No. 280(Asr)/2014

employment and creat opportunities for self employment; that this

purpose is in public interest; and that the excise duty 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 "Sawhney 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 b y

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.

7 ITA No. 280(Asr)/2014

9. Further, as rightly considered by the ld. CIT(A), the decision of

the Hon'ble J&K 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.

10. In view of the above discussion, finding no error therein, the well

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.

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

Order pronounced in the open court on 12 t h January, 2015.

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

Dated: 12th 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.