TaxTMI 
TaxTMI 
2018 (2) TMI 501
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....e of Sahaney Steel and Press Works Ltd. Vs. CIT (228 ITR 253) and held that what appellant had received both from the Central Government and State Government is nothing but grants in aid received for the purpose of setting up of its business and to complete the projects and it was received for capital purposes. 2. The CIT(A) ought to have considered the fact that the unspent balance of grants in aid not earmarked for any capital expenditure and it should be brought to tax. 3. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the Commissioner of Income Tax (Appeals) may be set aside and that of the Assessing Officer restored. 3.1 Briefly stated the facts of the case are as follows: The assessee is a Government company. It is engaged in the activity of production and distribution of frozen semen and also conducts research in cattle breeding, fodder production etc.. The assessee is having units in various districts all over the State of Kerala. For the assessment year 2012-13, the return of income was filed on 30/09/2012, declaring total income at Rs. 1,40,64,800/-. The assessment was taken up for scrutiny by issuance of noti....
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....ax the unspent fund received while treating the same as not capital in nature, doesn't arise. This apart, if at all, the unspent balance amount has to be brought to tax then the entire grant received during the year should have been treated as revenue receipt and accordingly, assessed to tax. This was not done by. The Assessing Officer has added to the income returned only the unspent grant outstanding during the year. Partial disallowance of balance amount of grant received is very much illogical and cannot be within the permissible limit of the Act as well. It can further be seen that grant received for meeting certain administrative and day to day expenses are booked separately in the profit and loss account. In view of this, what was received by the appellant is nothing but grant and since it was received both for acquiring capital assets and implementing the schemes and projects, the grants are of capital in nature and cannot brought to tax. 7. It is not the case of the Assessing Officer that he brought to tax the entire amount of grant received during the year but considered for tax only the balance amount of grant actually spent as capital receipt. The Assessing Officer c....
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....dingly, the appeal is allowed." 3.3 Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before the Tribunal. The Ld. DR submitted that these amounts received from the Government of India and the Government of Kerala, are not earmarked for any capital expenditure and they were received for the business activities of the assessee-company. Therefore, it was contended that the Assessing Officer has rightly brought to tax the unspent balance as revenue receipt. The Ld. DR has also filed balance sheet and P&L account for the relevant assessment year, 2012-13. 3.3.1 The Ld. AR on the other hand filed a brief written submission along with certain annexures and reiterated the submissions made before the income tax authorities. The Ld. AR strongly supported the findings/conclusion of the CIT(A). 3.4 We have heard the rival submissions and perused the material on record. It is the case of the assessee that grants received are for the specific purposes envisaged by the Government of India and the same can be utilized only for that purpose. It was submitted by the assessee that grants are released based on budget estimates and unspent balance as on 31.03.2012 has ....
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.... Amount 1. Conservation of Malabari Goat 33,02,101.00 2. Plan Funds - Govt. of Kerala 3,22,30,651.87 3. Other Scheme expenses 87,946.00 4. Piggery Development Programme (GOK) 2,09,523.00 5. National Fodder Production Programme 21,21,045.50 6. Piggery Development Programme (GOI) 10,86,247.00 7. Livestock Insurance Scheme 55,69,502.62 8. Strengthening Goat Breeding Centre Dhoni - GOK 11,57,783.00 9. RKVY Scheme 13,93,99,663.00 10. Sree Chithra Heart Valve Production 7,12,259.00 11. Goat Development Programme(DAH) 13,27,304.00 12. Attappadi Black Goat Scheme (GOI) 1.19,96,521.00 13. Establishment of Fodder Pelleting Units 1,94,354.00 14. Grass Land Development Kolahalamedu 1,77,202.00 15 State Livestock Insurance 6,12,71,381.00 16. Modern Bull Mother Farm - GOK 84,97,337.00 17. Al Network -IDRSS 46,77,055.00 18 Buffalo Breeding, Kuriottumal - GOK 5,00,000.00 19 DLF - Kudapanakunnu PIT SILO MAKING- GOK 4,82,509.00 20 State Horticulture Mission 8 8,750.00 21. Establishment of Silage Making Units-GOK 29,20,089.00 22. Hitech - Kolahalamedu - GOK 5,38,00,000.00 23. Introduction of Goat units - Kuttanad-GOI 2,68,18,7....
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....ame but the entire grant received during the year ought to have been brought to tax. The grants that are received for meeting certain administrative and day to day expenses are booked separately in the P&L account and the same is evidenced on perusal of the P&L account which is placed on record. The amounts that are subject of adjudication before us are only those amounts that are received by the assessee as grant-in-aid for acquiring capital assets and implementation of specific schemes and projects as envisaged by the Central Government and the State Government. These grants cannot be brought to tax as revenue receipts since assessee is only a nodal/implementing agency for the schemes envisaged by the respective governments. 3.4.5 In this context, let us examine some of the judicial pronouncements on this issue. (i) Hon'ble Punjab & Haryana High Court in the case of CIT vs. The Punjab State-E-Governance in ITA No. 75 of 2011 (judgment dated 21st April, 2011) was considering the following substantial question of law: i) Whether in the facts and circumstances of the case and in law the ITAT was justified in upholding the decision of Id. CIT(A) and deleting the addition of j R....
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.... not given to the assessee for carrying on its day-to-day business. Infact, if after research if the assessee is able to acquire new ideas or new knowledge and use the same in its manufacturing activity, it would be a case of acquisition of such new idea which in itself would constitute an intellectual property. It is to acquire such capital asset, the grantin- aid is given. It also helps in the growth of the assessee generally in public interest, so as to assist the assessee to acquire the new capital asset and the said benefit may be incidental to the business of the assessee. It is in the nature of capital asset. Once it is to be held as capital asset, even if the records maintained by the assessee, they show as revenue expenditure, it would not make any difference in law, as the liabililty to tax is depending on the object with which the grant-in-aid is given to the assessee. In that view of the matter, the facts of this case, when the grant-in-aid is given to the assessee for research in the field of telecommunications, which in-turn would benefit the Nation and public at large, the said income is only a 'capital receipt' and not a 'revenue receipt' as contende....
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.... reconciliation process is over. 4. The CIT(A) ought to have allowed the addition as the assessee had failed to produce the reconciliation even during the appeal proceedings. 5. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the Commissioner of Income Tax(Appeals) may be set aside and that of the Assessing Officer restored. 4.1 In the above grounds, the Revenue has raised two issues: (i) Whether the CIT(A) is justified in deleting the addition made by the Assessing Officer on the unspent balance of grant in aid received from the Government as on 31/03/2003. (ii) Whether the CIT(A) is justified in deleting the addition made by the Assessing Officer on account of sundry credits. (i) Whether the CIT(A) is justified in deleting the addition made by the Assessing Officer, being the unspent balance of grant in aid as on 31/03/2003 received by the assessee from the Government. 4.2 This issue has already been considered by us in ITA No. 474/Coch/2016. For the reason mentioned in paras 3.4 to 3.4.6(supra), we hold that the unspent balance of grant as on 31-03-2003 received by the assessee from the Government cannot be b....
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....nsidering the assurance given by the appellant that they are making reconciliation and the amount which has no claim from the parties will be offered for tax during the relevant year once the reconciliation process is over, I have no other option but to delete the addition made since the same has not been justified by the Assessing Officer. However, the appellant is hereby directed to complete the reconciliation exercise at the earliest possible and report the outcome to the officer for further necessary action if need be, to be taken in this regard. Appeal on this ground is also allowed." 4.5 Aggrieved by the order of the CIT(A), the Revenue had raised this issue in the present appeal. The Ld. DR relied on the grounds raised in the Memorandum of Appeal. The Ld. AR on the other hand relied on the findings/conclusion of the CIT(A). 4.6 We have heard the rival submissions and perused the material on record. The CIT(A) has deleted the addition based on the assurance given by the assessee that reconciliation of the outstanding sundry creditors would be completed and unenforceable credits of sundry creditors would be offered to tax. In the interest of justice and equity, we are of th....
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....ustified in deleting the addition made by the Assessing Officer, being the unspent balance of grant in aid as on 31/03/2007 received by the assessee from the Government 5.2 This issue has already been considered by us in ITA No. 474/Coch/2016. For the reason mentioned in paras 3.4 to 3.4.6(supra), we hold that the unspent balance of grant as on 31/03/2007 received by the assessee from the Government cannot be brought to tax as revenue receipt. It is ordered accordingly. (ii) Whether the CIT(A) is justified in deleting the addition made by the Assessing Officer on account of interest accrued on treasury savings deposits. 5.3 The Assessing Officer had made the addition of Rs. 37,85,470/-. The Assessing Officer held that interest had accrued, since the assessee was following the mercantile system of accounting, and hence liable to be taxed. The relevant observation of the Assessing Officer reads as follows: "The assessee offered interest income towards deposits and loans as the interest received only (schedule-D). but as per schedule D-II forming part of balance sheet, an amount of Rs. 40,13,677/- has been receivable on Treasury Savings Bank as interest accrued on deposits. As ....