2019 (12) TMI 446 - AT - Income Tax

Appellant Prevails: Financial Assistance Deemed Capital, Assessment Order Upheld

The Tribunal concluded that financial assistance received by the appellant from NRDA was capital in nature for setting up facilities, not for business ... Revision u/s 263 - Treatment of receipts from NRDA - Capital receipt or revenue receipt - HELD THAT:- Enquiries were made by the AO during the course of the assessment proceedings. The first query letter dated 21.04.2015 contained 47 points and the said query letter is placed. A detailed reply was filed vide reply dated 01.07.2015 and the same is placed. The second query letter is dated 21.09.2015 which is placed at page 364 of the PB and the reply has placed at page 361 of the PB dated 08.10.2015 in which the assessee specifically explained the treatment of receipts from NRDA and pointed out that the nature of receipts has already been explained in not on business activities. By another reply dated 30.10.2015 which is placed assessee explained that the financial assistance received from NRDA is in the nature of capital receipt and cannot be considered as Revenue receipt. It was specifically explained that financial assistance if received for creation of an asset is not taxable being capital receipt. It was pointed out that any receipt which is intrinsically connected with construction of assessee’s plant would be capital receipt. A further reply was filed on 19.02.2016 giving the details of capital work in progress and treatment of amounts received from NRDA this reply is placed at pages 299 to 302 of the PB. Considering these plethora of evidences it cannot be said that no enquiry was made by the AO during the course of the assessment proceedings. There remains nothing for the PCIT to assume jurisdiction u/s 263 of the Act to say that assessment order is not only erroneous but prejudicial to the interest of the Revenue. We are of the considered view that the PCIT has wrongly assumed the jurisdiction u/s 263 of the Act. Hence, his order for both the assessment years under consideration deserves to be set aside. We, accordingly, set aside the order of the PCIT and restore that of the AO. - Decided in favour of assessee. Issues Involved:1. Treatment of financial assistance received by the assessee from NRDA.2. Jurisdiction of the PCIT under section 263 of the Income Tax Act, 1961.3. Adequacy of the AO's enquiry during the assessment proceedings.Issue-wise Detailed Analysis:1. Treatment of Financial Assistance Received by the Assessee from NRDA:The appellant, a company involved in water supply and waste disposal, entered into a Water Concession Agreement with NRDA on 05.11.2009. The agreement was on a Build, Operate, and Transfer (BOT) basis for a period of 8 years. The appellant received financial assistance of Rs. 115.60 crores from NRDA for constructing project facilities, with Rs. 18.50 crores received in AY 2013-14 and Rs. 6.48 crores in AY 2014-15. The core issue was whether this financial assistance was a capital receipt or revenue receipt. The appellant treated it as a capital receipt, which was accepted by the AO. The PCIT, however, argued that it should be treated as revenue receipt and taxed accordingly, deeming the original assessment erroneous and prejudicial to the Revenue’s interest.2. Jurisdiction of the PCIT under Section 263 of the Income Tax Act, 1961:The PCIT invoked section 263, asserting that the AO did not conduct a thorough investigation and simply accepted the appellant’s contention. The PCIT believed the financial assistance should be taxed as income, rendering the assessment order erroneous and prejudicial to the Revenue. The appellant contended that the AO made thorough enquiries and the financial assistance was rightly treated as a capital receipt. The appellant argued that the PCIT did not have the authority to set aside the assessment without recording a prima facie finding on the merits after necessary enquiries.3. Adequacy of the AO's Enquiry During the Assessment Proceedings:The Tribunal reviewed the assessment process, noting that the AO issued multiple query letters and received detailed replies from the appellant. The AO examined the nature of the financial assistance, concluding it was a capital receipt. The Tribunal referenced several judicial decisions, including the Hon’ble Supreme Court’s rulings in V.S.S.V. Meenakshi Achi and Sahni Steel & Press Works Ltd., which established that the nature of a subsidy is determined by its purpose. The Tribunal found that the AO’s view was plausible and supported by adequate enquiry and evidence.Conclusion:The Tribunal concluded that the financial assistance received by the appellant from NRDA was capital in nature, as it was meant for setting up facilities and not for assisting in business operations. The Tribunal held that the AO conducted a thorough enquiry and the assessment order was neither erroneous nor prejudicial to the Revenue. Consequently, the PCIT’s assumption of jurisdiction under section 263 was deemed incorrect. The Tribunal set aside the PCIT’s order and restored the AO’s assessment order, allowing the appeals filed by the assessee.