Jammu & Kashmir High Court
Principal Commissioner Of Income Tax vs M/S Gravita Metal Inc on 31 October, 2024
Author: Chief Justice
Bench: Chief Justice
HIGH COURT OF JAMMU & KASHMIR AND LADAKH
AT JAMMU
Reserved on : 07.10.2024
Pronounced on: 31.10.2024
ITA No.1/2024
Principal Commissioner of Income Tax
Mouza Nursing Garh, Silk Factory Road,
Rajbagh, Srinagar - 190008 .....Appellant
Through: Mr. Suraj Singh Wazir, Advocate.
versus
M/S Gravita Metal Inc.
25, SICOP, Industrial Estate Kathua, .....Respondent
Jammu & Kashmir at Jammu.
Through: Mr. Pranav Kohli, Sr. Advocate, with
Mr. Saquib Mehmood, Advocate.
CORAM: HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE M.A. CHOWDHARY, JUDGE
JUDGMENT
Tashi Rabstan - CJ
1. This appeal is directed against the order dated 15.06.2023 passed by the
Income Tax Appellate Tribunal, Amritsar Bench, Amritsar for the assessment
year 2016-17, whereby the appeal filed by the appellant being ITA
No.594/Asr/2019 came to be dismissed, whereas the appeal filed by the
respondent herein being ITA No.587/Asr/2019 came to be allowed.
2. The facts-in-brief are that the assessee-respondent herein had filed the
return of income on 12.10.2016 for the assessment year 2016-17 declaring
income of rupees nil after setting off brought forward losses of
Rs.1,83,50,597/-. However, during the assessment proceedings it was noticed
by the appellant-department that the assessee had claimed excise duty refund
of Rs.5,15,25,900/- as capital receipt and had claimed exemption under Section
10 of the I.T. Act, 1961. The appellant-department was of the view that in view
of amendment in finance I.T. Act, 2015 and as per the amended section 2(24)
(xviii) of the I.T. Act, 1961, any assistance in the form of subsidy, grant etc.
provided by the government or any authority is to be conceded as income.
Therefore, the appellant-department was of the view that since the excise duty
refund also falls in this category as on 11.12.2018, as such the assessee was
asked to explain and show cause, as to why, the excise duty refund of
Rs.5,15,25,900/- taken as capital receipt and claimed as exemption u/s 10, may
not be conceded as revenue receipt and taxed accordingly.
3. In response to the show cause notice the assessee-respondent herein
submitted his reply and, besides other things, it was stated that during the
aforementioned year the firm did not receipt any excise refund and just for
accounting purposes and quantification before the Supreme Court, the notional
amount was booked.
4. However, the appellant-department being not satisfied with the reply of
assessee-respondent herein, vide assessment order dated 21.12.2018 held that
the assessee had furnished inaccurate particulars of income by claiming
Rs.5,15,25,900/- as capital receipt corresponding to the excise duty refund
instead of revenue receipt as per amended section 2(24)(xviii) of the I.T. Act.
Accordingly, penalty proceedings were also initiated against the assessee for
furnishing inaccurate particulars of income.
5. Against the said assessment order dated 21.12.2018 the assessee-
respondent herein filed an appeal before the Commissioner of Income Tax
(Appeals), Jammu, being CAJ/10327/2018-2019. The Commissioner of
Income Tax (Appeals), Jammu, vide order dated 17.05.2019, while partly
allowing the appeal held that the amount of Rs.3,29,76,575/- cannot be taxed
as income for the year 2016-17 on the ground that the Excise Department was
under no obligation to pay balance 64% of the excise duty collected by the
assessee during the said year. Thus, it was directed to the Assessing Officer to
delete the addition of Rs.3,29,76,575/-. However, the addition of balance
amount of Rs.1,85,49,324/-, which is 36% of the net excise duty, was treated
as income of the assessee in view of Notification No.19 of 2008 and amended
Section 2(24)(xviii) of the Income Tax Act.
6. Aggrieved of the said order of Commissioner of Income Tax (Appeals),
Jammu, both - the appellant-department herein as well as assessee-respondent
herein, filed two different appeals before the Income Tax Appellate Tribunal,
Amritsar Bench, Amritsar. However, the Income Tax Appellate Tribunal vide
common order dated 15.06.2023 dismissed the appeal being ITA
No.594/Asr/2019 filed by the appellant-department for the assessment year
2016-17, whereas the appeal filed by the assessee-respondent herein being ITA
No.587/Asr/2019 came to be allowed. Hence, the present appeal on behalf of
Principal Commissioner of Income Tax, appellant herein.
7. Heard learned counsel appearing for the parties, considered their rival
contentions and also perused the appeal file.
8. Admittedly, the assessee-respondent herein had been following the
mercantile system of accounting and this has also been admitted by the Income
Tax Department in its assessment order dated 21.12.2018. In this system,
incomes and expenses are recorded in the books of accounts, as and when they
are earned or incurred, irrespective of the fact whether they are actually
received or paid. Therefore, where accounts are kept on mercantile basis, the
profits or gains are credited, though they are not actually realized, and, the
entries thus made really show nothing more than an accrual or arising of the
said profits at the material time. In the mercantile system of accountancy, the
book profits are taken for the purpose of assessment of tax, though the credit
amount is not realized or the debit amount is not actually disbursed; meaning
thereby, in the present case, the impugned amounts as brought to tax by the
Income Tax Officer did not represent the income which had really accrued to
the assessee-respondent herein during the relevant assessment year.
9. It is settled law that income tax cannot be levied on hypothetical income
and only real income can be taxed. Therefore, recording of entries in the books
of accounts is not conclusive to determine the income under the provisions of
law. As such, we are in full agreement with the learned regional Income Tax
Tribunal, that whether an amount is to be considered as income or not is to be
determined on the basis of the Income Tax Law and not on the basis of the
entries made in the books of accounts; that no tax can be charged on an amount
which is not actually earned and that the learned Tribunal was right, in deleting
the addition of Rs.3,29,76,575/- as hypothetical income which has not actually
accrued, which was otherwise 64% of the excise duty recognized by the
assessee in its books of accounts.
10. The next contention of the appellant is that in view of insertion of Clause
(xviii) to Section 2(24) of the Act, introduced by the Finance Act, 2015, any
subsidy, grant, cash incentive, duty drawback, waiver, concession and
reimbursement referred to in the said clause is considered as income and only
because the word 'exemption' is not mentioned therein, it is not open for the
tax payers to interpret the same as per their own convenience.
11. Admittedly, as per Black's Law Dictionary (Sixth Edition) 'exemption'
means freedom from a general duty or service; immunity from a general
burden, tax, or charge, immunity from service of process or from certain legal
obligations, as jury duty, military service, or the payment of taxes. Whereas,
'subsidy' means a grant of money made by government in aid of the promoters
of any enterprise, work, or improvement in which the government desires to
participate, or which is considered a proper subject for government aid,
because such purpose is likely to be of benefit to the public.
12. In the present case, the assessee is exempted from making payment of
excise duty to the extent of 36% of the total excise duty collected, meaning
thereby the same is not subsidy given to meet the cost of the project. Therefore,
we are also in full agreement with the learned Tribunal that exemption from
excise duty does not fall in the definition of income as envisaged under Section
2(24)(xviii) of the Act and that the amount of Rs.1,85,49,324/- is not an
income but a capital receipt not taxable under the provisions of the Income Tax
Act.
13. Viewed thus, we do not find any merit in the appeal and the same is,
accordingly, dismissed along with connected CM(s), if any.
Jammu (M.A. Chowdhary) (Tashi Rabstan)
31.10.2024 Judge Chief Justice
(Anil Sanhotra)
Whether the order is reportable ? Yes/No
Whether the order is speaking ? Yes/No
