Excise duty Refund are Purely Capital Receipts, not Chargeable to Tax: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, in an appeal filed before it, held that excise duty refund are purely capital receipts and hence that they are not chargeable to tax.

The aforesaid observation was made by the Tribunal when cross appeals were preferred before it by the assessee M/s. Insecticides (India) Ltd. and the Revenue Department, against the order dated 24.04.2017, passed by the learned Commissioner of Income Tax (Appeals)-4, New Delhi, under section 250 of the Income-tax Act, 1961, for the assessment year 2013-14.

The brief facts of the case are that the Assesseewho was engaged in the business of manufacturing and trading pesticides, insecticides, agrochemicals, etc., having filed its return of income on 27.11.2013 by declaring an income of Rs.4,92,27,220/- after claiming deduction under Chapter VIA at Rs.18,76,38,726/-, had paid the taxes under MAT at book profit of Rs.46,40,00,764/.

The case of the Assessee being selected for scrutiny under CASS and subsequently, a notice dated 04.09.2014 u/s. 143(2) being served upon the Assessee, the assessee revised its return dated 21.03.2015 and declared the total income at ‘NIL’ after claiming deduction under Chapter VIA to the tune of Rs.8,84,45,531/, paying taxes on the book profit of Rs.31,55,80,349/-.

Under the revised return, the Assessee had also reduced the total income by an amount of Rs.14,84,20,415/- by showing the same as ‘capital receipts’, which was earlier shown as ‘revenue receipts’ in the original return of income. And further, he had also reduced the book profit at the same amount in its revised return and paid the taxes accordingly.

Therefore, considering the said facts during the assessment proceedings, it was observed by the Assessing Officer that in the original return of income, the Assessee declared the income under the heads of business, income from other sources, and income from capital gains.

It was further noticed by the Assessing Officer that in the revised return, the Assessee had reduced an amount of Rs.14,84,20,415/- out of the total income under the head of business claiming to be ‘capital receipts’, which was actually shown as ‘revenue receipts ’in the original return of income.

Aa a result of the same, the Assessee was shown caused by the AO and confronted on these aspects vide order sheet entry dated 22.02.2016 and was also asked to file complete details, documentary evidence and prove as to how the amount in question was ‘capital receipts’ and not ‘revenue receipt’.

The Assessee while relying upon the Excise Notifications No. 56/57 dated 14.11.2012 issued by the Central Excise Department and the judgments of the Supreme Court in the case of CIT vs. Ponni Sugars & Chemical Ltd. (2008) 306 ITR 392(SC), and that of the High Court of Jammu & Kashmir in Shree Balaji Alloys vs. CIT (2011) 333 ITR 335(J&K), submitted that excise duty refund being purely capital receipts, the same is not chargeable to tax.

However, with the Assessing Officer declining the claim of the Assessee and treating the aforesaid amount of Rs.14,84,20,415/- as ‘revenue receipts; consequently adding it to the total income under the normal provisions and book profit under MAT, the Assessee was left with no other option but to prefer an appeal before the Tribunal.

Hearing the opposing contentions of both parties and perusing the materials available on record, the Tribunal observed:

“We have given thoughtful consideration to the peculiar facts and circumstances of the case and are of the considered view that the decision of the ld. Commissioner on the issue in hand is not only based on the peculiar facts and circumstances, but also upon the judgment of the Hon’ble Jammu & Kashmir High court in the case of Shree Balaji Alloys & Ors. , wherein the Hon’ble High Court while considering the Central Excise Notifications No. 56/57 of 11.11.2002 which are pari-materia to the notifications No. 56/57 dated 14.11.2012, issued by the Central Excise Department as involved in the instant case, clearly held “that excise duty refund and interest subsidy were production incentives and ‘capital receipts’ in the hands of the Assessee.”

“The said judgment of the Hon’ble High Court has also been scrutinized and approved by the Hon’ble Apex Court in the case of CIT, J&K, and Anr. Vs. ShriBalaji Alloys, Civil Appeal No. 20666 of 2013 and others, order dated 19.04.2017, wherein the Hon’ble Apex Court dismissed the appeal filed by the Revenue by holding “that the issue raised in these appeals is covered against the Revenue.”, the Bench added.

“It is also a fact that the Assessing Officer in the subsequent cases for the A.Y. 2014-15 and 2015-16, has allowed the excise duty refund and interest subsidy as ‘capital receipts’, it further observed.

Thus, finally dismissing the Revenue’s appeal while allowing that of the assessee, the Tribunal concluded:

“On the analyses made above and in cumulative effects, we are inclined not to interfere in the decision of the Ld. Commissioner on the issue in hand, consequently the grounds raised/appeal filed by the Revenue Department stands dismissed.”

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