Sale Tax Incentive Subsidy and Excise Duty Incentive are Capital Receipt, not chargeable to Tax: ITAT [Read Order]

The sale tax incentive subsidy and excise duty incentive are capital receipt and not chargeable to tax, was ruled by the Delhi bench of the Income Tax Appellate Tribunal (ITAT).

The assessee, Genus Electrotech Limited filed its return of income declaring loss of Rs.18,80,00,836. The order u/s 250 of the Act was passed on 10.12.2013 and the effect was given and income was revised to loss of Rs.18,80,00,836/-.  The order u/s 154 of the Act was passed by the AO on 22.03.2016 calculating the book profit of Rs.9,28,81,324/-.

 In the order u/s 154, AO noted that assessee had shown net profit of Rs.10,71,44,263/- but had not shown any tax liability u/s 115JB of the Act and no tax was received under MAT.  The income was assessed u/s 143(3) of the Act on 29.12.2009 for Rs.5,54,93,353/- after disallowing sales tax subsidy income credited as income in P&L account being capital receipts and treating the same as revenue receipts and central excise rebate refund. 

It was observed that the sales tax incentives subsidy of Rs.12,74,46,480/- and Excise duty incentive of Rs.79094513/- received by the appellant were in the nature of capital receipts and thus not chargeable to tax as regular income as well as income u/ s 115JB of the Act, for computation of book profit. Further, it was viewed that a Debenture Redemption Reserve labeled as a reserve will not render it as a reserve in the true sense or meaning of that concept.

 An amount which is returned by way of providing for a known liability is not a reserve. Consequently, the amount which was set apart as a Debenture Redemption Reserve is not a reserve within the meaning of Explanation (b) of Section 115JA of the Act. 

Shri Shamim Yahya, accountant member and Shri Yogesh Kumar US, judicial member viewed that the subsidy nowhere linked to cost of acquisition of the assets and no need to make any deduction from the depreciation claimed. The Tribunal set aside the Revenue’s appeal and allowed the assessee’s appeal.

The assessee was represented Shri Mayank Patawari and Md. Gayasuddin Ansari and the revenue was represented by Shri J.K. Mishra.

To Read the full text of the Order CLICK HERE

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