2022 (4) TMI 577 - AT - Income Tax

Sales tax subsidy rightfully excluded from taxable income, Tribunal grants relief

The Tribunal allowed the assessee's appeal, directing the Assessing Officer to exclude the sales tax subsidy from the taxable income. The Tribunal ... Nature of receipt - Subsidy received by the assessee as Industrial Promotion Assistance (IPA) from the state Govt, under West Bengal Industrial Promotion (Assistance to Industrial Units) Scheme - Capital Receipt or Revenue Receipt - claim of the assessee was rejected by the Ld. AO as well as the Ld. CIT(A) on the ground that the same cannot be claimed by the assessee in the rectification petition u/s 154 since the same was not claimed in the return of income filed by the assessee - HELD THAT:- Hon’ble Supreme Court in the case of Balaji Alloys [2016 (4) TMI 1161 - SC ORDER] and the decision of CIT vs Rasoi Limited [2011 (5) TMI 23 - CALCUTTA HIGH COURT], the sales tax subsidy received by the assessee from the Govt. of West Bengal under a scheme of industrial promotion was a capital receipt. Also the said issue has already been decided by the Tribunal in the own case of the assessee [2020 (10) TMI 1322 - ITAT KOLKATA] as tax subsidy is to be treated as capital receipt. Fresh claim before the Assessing Officer by way of a rectification application - The taxation of a capital receipt which did not constitute income of the assessee, in our view would constitute a mistake apparent on record - The Hon’ble Delhi High Court [2016 (3) TMI 977 - DELHI HIGH COURT] has referred to in this respect to the decision of CIT vs Shelly Products and another [2003 (5) TMI 4 - SUPREME COURT]. The Hon’ble Delhi High Court has also referred to CBDT Circular No. 14(XL-35) of 1955 dated 11.04.1955, wherein, the CBDT has directed that the officers of the department must not take advantage of ignorance of an assessee as to his rights and that it is one of their duties to assist a tax payer in every reasonable way, particularly, in the matter of claiming and securing relief's and that they should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. Thus in the light of Article 265 of the Constitution of India and in the light of various decisions of the Hon’ble Supreme Court and other High Courts of the country, in our view, the lower authorities failed to exercise jurisdiction vested in them under the jurisdiction of section 154 of the Act. Even otherwise the bar, if any, relating to entertain a fresh claim is on the Assessing Officer. However, there is no bar on the higher authorities and especially upon this Tribunal in exercising its power u/s 254 of the Income Tax Act to entertain or to deal not merely with additional ground which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. Reliance in this respect can be placed on the decision of the Hon’ble Bombay High Court in the case of CIT vs Pruthvi Brokers and Shareholders Pvt. Ltd. [2012 (7) TMI 158 - BOMBAY HIGH COURT]. Further, reliance in this respect can be placed on the decision of Hon’ble Supreme Court in the case of National Thermal Power Company Ltd [1996 (12) TMI 7 - SUPREME COURT] and the full bench of the Hon’ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. [1992 (4) TMI 29 - BOMBAY HIGH COURT] We allow the appeal and direct the Assessing Officer to exclude the income from sales tax subsidy received from Govt. of West Bengal which has been inadvertently offered by the assessee for taxation and grant the appropriate relief / refund of the assessee. Appeal of assessee allowed. Issues Involved:1. Rejection of the assessee's rectification petition under Section 154 of the Income Tax Act.2. Classification of the subsidy received as Industrial Promotion Assistance (IPA) from the state government as a capital receipt instead of a revenue receipt.Issue-wise Detailed Analysis:1. Rejection of the assessee's rectification petition under Section 154 of the Income Tax Act:The assessee filed a rectification petition under Section 154 of the Income Tax Act, claiming that the subsidy received as Industrial Promotion Assistance (IPA) should be classified as a capital receipt instead of a revenue receipt. The Assessing Officer (AO) rejected this petition, relying on the Supreme Court decision in 'Goetze India Ltd. vs CIT' (157 Taxman 1 SC), which states that any fresh claim must be made by filing a revised return under Section 139(5) of the Income Tax Act. The AO held that no new claim can be made during the assessment proceedings through a rectification letter. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, emphasizing that the Supreme Court's ruling in the Goetze case was applicable and critical to the present case.2. Classification of the subsidy received as Industrial Promotion Assistance (IPA) from the state government as a capital receipt instead of a revenue receipt:The assessee contended that the subsidy of Rs. 2,92,39,388 received from the West Bengal Government should be treated as a capital receipt, not a revenue receipt. The assessee argued that the amount was wrongly offered for taxation under a mistaken belief and cited various judicial decisions, including the Supreme Court's rulings in 'CIT vs Ponni Sugars & Chemicals Ltd.' (306 ITR 392) and 'Balaji Alloys vs CIT' (80 taxmann.com 239), as well as the Calcutta High Court's decision in 'CIT vs Rasoi Limited' (335 ITR 438). These cases established that sales tax subsidies for industrial promotion are capital receipts. The Tribunal noted that this issue had already been decided in favor of the assessee for the earlier assessment year (A.Y. 2013-14) and should logically apply to the subsequent assessment year (A.Y. 2014-15).Tribunal's Findings:The Tribunal acknowledged that the assessee's plea was not a fresh claim but a correction of an inadvertent error where a non-taxable capital receipt was mistakenly offered for taxation. The Tribunal referred to the Delhi High Court's ruling in 'Vijay Gupta vs Commissioner of Income Tax' (WP(C) 1572/2013), which emphasized that tax cannot be levied or collected except by the authority of law (Article 265 of the Constitution of India). The Delhi High Court also highlighted that if an assessee mistakenly includes a non-taxable amount in their income, the Assessing Officer should grant relief and refund the excess tax paid.The Tribunal further noted that the restriction on making a fresh claim applies to the Assessing Officer but not to higher authorities or the Tribunal itself. The Tribunal cited the Bombay High Court's decision in 'CIT vs Pruthvi Brokers and Shareholders Pvt. Ltd.' (349 ITR 336) and the Supreme Court's ruling in 'National Thermal Power Company Ltd. vs CIT' (229 ITR 383), which allow higher authorities to entertain additional grounds.Conclusion:The Tribunal concluded that the lower authorities failed to exercise their jurisdiction under Section 154 of the Act and directed the Assessing Officer to exclude the sales tax subsidy from the taxable income of the assessee. The appeal was allowed, and the appropriate relief/refund was granted to the assessee.Result:The appeal of the assessee was allowed, and the order was pronounced in the open court on 30.03.2022.