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Judgment
PER VIKAS AWASTHY, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-23, New Delhi [in short ‘the CIT(A)’] dated 27.10.2023, for Assessment Year 2020-21.
Shri Sandeep S. Nagar, appearing on behalf of the assessee submits that the solitary issue in the present appeal is the addition of Rs.12,55,39,138/-sustained by the CIT(A) in respect of subsidy received by the assessee. The ld. Counsel submits that the assessee is engaged in the business of manufacturing of generators, solar products and diesel power plants. During the period relevant to the assessment year under appeal, the assessee filed its return of income u/s 139(1)of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) declaring total income of Rs.132,05,84,670/-. The assessee’s return of income was processed u/s 143(1) of the Act vide intimation dated 24.12.2021 and the assessee’s income was determined at Rs.143,12,85,320/-. Thereafter, the assessee’s return was selected for scrutiny under CASS. During the course of scrutiny assessment proceedings, the assessee filed revised computation of income. The Assessing Officer (AO) rejected revised computation filed by the assessee and completed the assessment by making addition/disallowance of Rs.1,48,38,495/-. Aggrieved by the assessment order dated 24.03.2022, the assessee filed appeal before the CIT(A). In appeal, the assessee inter alia assailed findings of the AO in rejecting assessee’s claim that the Excise Duty/GST subsidy received during the relevant assessment year was not taxable under the normal provisions of the Act. The ld. Counsel submits that the assessee has a unit in Jammu & Kashmir. The Government of India, Ministry of Commerce & Industry, in order to augment industrial growth in the State of Jammu & Kashmir, introduced New Industrial Policy vide notification No.1(13)/2000-NER dated 14.06.2002 on the lines of the North East Industrial Policy notified by the Government of India vide O.M. No. EA/1/2/96-IPD dated 26.12.1997. The Central Government allowed fiscal incentives to the new industrial units, as well as, for substantial expansion of existing units. All such new industrial units and existing units seeking substantial expansion set up in locations like Industrial Infrastructure Development Centres (IIDC), Industrial Estates, Parks, Export Processing Zones, Commercial Estates, etc., as notified by the Central Government in the State of Jammu & Kashmir, were entitled to 100% Excise Duty exemption for a period of 10 years from the date of commencement of commercial production. During the year under consideration, the assessee received subsidy under the aforesaid scheme to the tune of Rs.8,55,60,780/- and offered the same to tax in the return of income filed u/s 139(1) of the Act. Subsequently, the assessee by way of revised computation claimed that the said subsidy is not taxable. The AO did not take cognizance of the revised computation filed by the assessee. Thereafter, the assessee raised this issue by way of additional claim in appeal before the CIT(A). The CIT(A) rejected the assessee’s claim stating that the power to entertain a claim not made in the return of income is with the Tribunal and not with the CIT(A). The CIT(A) came to such conclusion after referring to the decision rendered by the Hon’ble Supreme Court of India in the case of Goetze (India) Ltd. vs. CIT, 284 ITR 383.
The ld. Counsel for the assessee submits that the Central Government vide Notification No. 56/2002 dated 14.11.2002 clarified that the subsidy received by way of refund of GST and Excise Duty, hence, the same is not taxable in the hands of the assessee. In support of his submissions, the ld. Counsel placed reliance on the decision of the Hon’ble High Court in the case of PCIT vs. Gravita Metal Inc., 168 taxmann.com 379 (J&K and Ladakh) and the orders of the Tribunal in the case of DCIT vs. PC Jeweller Ltd. in ITA No.2581/Del/2024 for A.Y. 2015-16 decided on 06.06.2025 and in the case of Balaji Powertronics vs. DCIT in ITA No.2743/Del/2022 for A.Y. 2017-18 decided on 02.12.2025. The ld. Counsel submits that the issue is squarely covered by the decision of the Hon’ble Jammu & Kashmir High Court and the Coordinate Bench of the Tribunal, wherein under the same industrial policy, the subsidy received has been held to be not taxable, being capital in nature. He thus prayed for reversing findings of the CIT(A) on this issue.
Per contra, Shri Manoj Kumar, representing the Department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld. DR submits that the assessee in the return of income, itself had offered the subsidy amount to tax and subsequently by way of revised computation claimed the subsidy amount as exempt. For making any claim before the Act, the assessee was required to file revised return of income.
Both sides heard, orders of the authorities below examined. The documents and case laws referred to during the course of submissions by the ld. Counsel for the assessee considered. The limited issue for consideration in the present appeal by the assessee is; Whether the subsidy received by the assessee during the period relevant to assessment year under appeal is exigible to tax? Admittedly, in the return of income the assessee offered subsidy received during the relevant period to tax as Revenue receipt. The assessee made claim of subsidy as exempt by way of revised computation of income. The AO rightly rejected the assessee’s revised computation. It is no more res integra that the AO can entertain only a claim made by the assessee in the return of income or revised return of income and no claim made by the assessee by way of revised computation can be entertained by the AO. [Re: Goetze (India) Ltd. vs. CIT (supra)].
Thereafter, the assessee claimed subsidy as exempt from tax by way of fresh claim before the First Appellate Authority. The CIT(A) rejected the assessee’s claim referring to the decision of the Hon’ble Apex Court in the case of Goetze (India) Ltd. vs. CIT (supra). Now before the Tribunal, the assessee has reiterated its claim that the amount received under the subsidy scheme announced by the Government of India, Ministry of Commerce & Industry dated 14.06.2002 is exempt being capital receipt. The assessee has placed on record New Industrial Policy and other concessions for the State of Jammu & Kashmir notified by the Central Government under fiscal incentives to new industrial units and substantial expansion of existing units under the New Industrial Policy. A perusal of the same shows that, the Government has granted subsidy in the nature of exemption of 100% Excise Duty for a period of 10 years from the date of commencement of commercial production. For the sake of completeness, the relevant extract of the policy is reproduced herein below:
“3.1. Fiscal incentives to new industrial units and substantial expansion of existing units:
(i)New Industrial units and existing industrial units on their substantial expansion as defined, set up in growth centre, industrial infrastructure development centres (LIDCs) and other location like industrial estates, parks, export processing zones, commercial estates, etc. as notified by the Central Government are entitled to 100% (hundred percent) excise duty exemption for a period of 10 years form the date of commencement commercial production.
(ii)All new industries in the notified location would be eligible for capital investment subsidy @ 15% of their investment in plant and machinery, subject to a ceiling of Rs. 30 lakhs. The existing units will be entitled to this subsidy on substantial expansion, as defined.
(iii)An interest subsidy of 3% on the working capital loan would be provided to all new industrial units in notified locations for a period of 10 years after commencement of commercial production. This benefit would also be extended to existing units in notified locations on expansion, as defined, as well as to Annexure-Il Thrust Industries.
(iv)The insurance premium to the extent of hundred percent on capital investment for a period of 10 years would be extended by the Central Government to all new units and to existing units on substantial expansion, as defined.
(v)The present income tax exemption would continue as per the existing dispensation applicable to Jammu & Kashmir. The State Government may consider extending Sales Tax exemption to the units which avail of concessions under this policy.”
Thereafter, on 14.11.2002 notification no. 56/2002 was issued by the Govt. Of India under Central Excise, the said notification reads as under:-
“In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957(58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985(5 of 1986), other than goods specified in Annexure appended hereto, and cleared from a unit located in the Industrial Growth Centre. Industrial Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estate or Industrial Area or Commercial Estate, or Scheme Area, as the case may be, specified in Annexure - II appended hereto, from so much of the duty of excise or additional duty of excise, as the case may be, leviable thereon under any of the said Acts as is equivalent to the amount of duty paid by the manufacturer of goods, other than the amount of duty paid by utilization of CENVAT credit under the CENVAT Credit Rules, 2002.
2.The exemption contained in this notification shall be given effect to in the following manner, namely:-
(a)The manufacturer shall submit a statement of the duty paid, other than the amount of duty paid by utilization of CENVAT credit under the CENVAT Credit Rules, 2002, to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, by the 7th day of the next month in which the duty has been paid.
(b)The Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, after such verification, as may be deemed necessary, shall refund the amount of duty paid, other than the amount of duty paid by utilization of CENVAT credit under the CENVAT Credit Rules, 2002, during the month under consideration to the manufacturer by the 15th day of the next month.
(c)If there is likely to be any delay in the verification, the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall refund the amount on provisional basis by the 15th day of the next month to the month under consideration, and thereafter may adjust the amount of refund by such amount as may be necessary in the subsequent refunds admissible to the manufacturer.
3.The exemption contained in this notification shall apply only to the following kind of units namely:-
(a)New industrial units which have commenced their commercial production on or after the 14th day of June 2002.
(b)Industrial units existing before the 14th day of June 2002, but which have undertaken substantial expansion by way of increase in installed capacity by not less than twenty five percent on or after 14th day of June 2002.
4.The exemption contained in this notification shall apply to any of the said units for a period not exceeding ten years from the date of publication of this notification in the Official Gazette or from the date of commencement of commercial production whichever is later.”
We find that the Coordinate Bench of the Tribunal in the case of ACIT vs. Gravita Metal Inc. in ITA No.594/ASR/2019 for A.Y. 2016-17 vide order dated 15.06.2023 considered identical issue, i.e., taxability of subsidy amount under the New Industrial Policy launched for the State of Jammu & Kashmir on 14.06.2002. The Coordinate Bench, after considering the New Industrial Policy for the State of Jammu & Kashmir giving incentives for establishing new industrial undertakings and expansion of existing units and various decisions on the issue, held as under:-
“18.The Hon’ble Supreme Court in “Commissioner of Custom Vs. Dilip Kumar & Co.”, (Supra) by considering the decision of judgment of State of West Bengal Vs. Kesoram Industries Ltd. 10 SCC 201 decided by the bench of 5 judges, has laid down the principles applicable for interpretation of taxing statute that in interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and that If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legislature’s failure to express itself clearly’. This principal of law is quoted referred by Hon’ble Supreme Court in case of “Checkmate Services Pvt. Ltd. Vs. CIT”, (2022) 448 ITR 518 vide Para 50 of its judgement.
19.Respectfully, applying the above settled principal of law, to the interpretation of the Notification No.56/2002 dtd. 14.11.2002 as amended by Notification No.19/2008 dt. 27.03.2008, the assessee is granted exemption from payment of excise duty to the balance part of 36% of total excise duty collected. Since, the word ‘exemption’ in not included in the of ambit the Section 2(24)(xviii) of the Act, though it specifically includes the words subsidy, grant, cash incentive, duty drawback, waiver, concession & reimbursement. and hence, in the absence of inclusion of word ‘exemption’ under the said clause, we are of the considered view that the scope of this section cannot be enlarged to include exemption by interpreting that it is subsidy. Accordingly, the addition of Rs.1,85,49,324/-. confirmed by Ld. CIT(A) is held to be unjustified and bad in law. As such, the part addition confirmed by Ld. CIT(A) is directed to be deleted. Thus, the ground of the assessee is allowed.”
The Department filed appeal against the said order of the Tribunal before the Hon’ble High Court of Jammu & Kashmir and Ladakh in the case titled PCIT vs. Gravita Metal Inc., reported as 168 taxmann.com 379. The Hon’ble High Court affirmed the decision of Tribunal holding that Excise Duty refund does not fall within the definition of income as envisaged u/s 2(24)(xviii) of the Act and thus the amount of Excise Duty refunded is a capital receipt not taxable under the provisions of the Income Tax Act. Similar view has been taken by the Coordinate Bench of the Tribunal in the cases of DCIT vs. PC Jeweller Ltd. (supra) and Balaji Powertronics vs. DCIT (supra). No material controverting the aforesaid decisions has been placed before us by the Revenue. Hence, we see no reason to take a different view in the given admitted facts.
Thus, we hold that the subsidy received by the assessee by way of refund of GST/Excise Duty under the New Industrial Policy dated 14.06.2002 is not in the nature of revenue receipt, hence, not exigible to tax.
In the result, appeal of the assessee is allowed.