2019 (2) TMI 1837 - AT - Income Tax

Tribunal rules in favor of assessee on subsidy & share premium treatment

M/s. Shriniwas Engineering Auto Components Pvt. Ltd. Versus Pr. CIT-3, Pune.

M/s. Shriniwas Engineering Auto Components Pvt. Ltd. Versus Pr. CIT-3, Pune. - TMI Issues Involved:1. Nature of subsidy received under the Package Scheme of Incentives, 2007.2. Verification of share premium received and application of Section 56(2)(viib) of the Income Tax Act.3. Applicability of penalty under Section 271B read with Section 44AB of the Income Tax Act.Issue-wise Detailed Analysis:I. Nature of Subsidy under PSI, 2007:The assessee received a subsidy of Rs. 23,18,12,203 from the Maharashtra Government under the PSI Scheme 2007, which was treated as a capital receipt. The Assessing Officer (AO) accepted this claim after thorough examination and discussion, invoking Explanation 10 to Section 43(1) read with Section 2(24)(xviii) of the Act, disallowing depreciation of Rs. 3.48 crores by reducing the subsidy from the actual cost of the depreciable assets. The Pr.CIT, however, found the AO’s order erroneous and prejudicial to the interest of revenue, arguing that the AO did not correctly treat the subsidy receipts. The Tribunal upheld the AO's view, stating that the subsidy under PSI, 2007 is capital in nature and not liable to tax, referencing various judicial precedents, including decisions from the Hon'ble Supreme Court and High Courts. The Tribunal found no error in the AO's treatment of the subsidy and ruled that the Pr.CIT's invocation of Section 263 was unwarranted.II. Verification of Share Premium and Application of Section 56(2)(viib):The Pr.CIT argued that the AO failed to verify the genuineness and creditworthiness of the parties from whom the share premium was received and did not apply Section 68 and Section 56(2)(viib) read with Rule 11UA of the Income Tax Act. The Tribunal noted that the share premium was actually received in the financial year relevant to the assessment year 2011-12, and detailed verification was conducted by the AO during that period. The Tribunal held that the Pr.CIT failed to issue a show-cause notice regarding the share premium and share capital, making the cancellation of the AO's order on this ground unsustainable. The Tribunal allowed the assessee’s appeal on this issue, emphasizing that the share premium and capital received in the assessment year 2011-12 could not be questioned in the assessment year 2013-14.III. Applicability of Penalty under Section 271B read with Section 44AB:The Pr.CIT directed the AO to initiate penalty proceedings under Section 271B for failures under Section 44AB. The Tribunal referenced its decision in the case of Shri Nandkumar Bhalchandra Bhondve, where it was held that the Pr.CIT cannot direct the initiation of penalty proceedings under Section 263 as penalty initiation is not part of the assessment order. The Tribunal concluded that the Pr.CIT’s findings on the initiation of penalty proceedings were not justified and allowed the assessee’s appeal on this ground.Conclusion:The Tribunal allowed the assessee’s appeal, ruling that the AO’s treatment of the subsidy as capital receipt was correct, the share premium received in the assessment year 2011-12 could not be questioned in 2013-14, and the Pr.CIT could not direct the initiation of penalty proceedings under Section 271B in the context of Section 263.