TaxTMI 
TaxTMI 
2017 (4) TMI 1384
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...., declaring income of Rs. 151,57,79,896 under normal provisions and book profit of Rs. 179,40,78,764. Assessment in case of the assessee was completed under section 143(3) of the Act vide order dated 31st January 2014, determining the total income at Rs. 155,51,33,360, under the normal provisions and Rs. 180,62,77,764 under section 115JB. Subsequently, the PCIT exercising power under section 263, called for the assessment records and after examining the same found that, though, the assessee has received capital subsidy of Rs. 29,78 crore from Kureha Corporation, Japan, out of which Rs. 8,33,12,691, pertaining to the impugned assessment year, however, the assessee had reduced the said amount from its computation of income by treating it as capital receipt. The PCIT was of the view that as per the decision of the Hon'ble Supreme Court in Sahney Steel and Press Works Ltd. v/s CIT, [1997] 228 ITR 253 (SC), subsidy received after start of production is revenue in nature. He also observed, the subsidy received by the assessee was nothing but contractual receipt towards supply of chemical compound, hence, should have been treated as revenue receipt forming part of operating profit of ....
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....reciation rate of 35% or proportionate adjustment should have been made. He observed, if the capital subsidy would have been adjusted against the block of assets higher rate of depreciation, the depreciation available to the assessee would be substantially less than what is claimed by the assessee. He observed, non-consideration of these aspects by the Assessing Officer has made the assessment order erroneous and prejudicial to the interests of Revenue. Thus, ultimately, the learned PCIT holding the assessment order passed under section 143(3) to be erroneous and prejudicial to the interests of Revenue, set it aside with a direction to the Assessing Officer to make a fresh assessment after examining the taxability and nature of subsidy received by the assessee from Kureha Corporation, Japan. 3. Learned Authorised Representative vehemently opposing the assumption of jurisdiction under section 263 of the Act by the learned PCIT submitted, under the terms of the agreement Kureha Corporation, Japan, had agreed to meet part of the investment in new manufacturing facilities to be set-up by the assessee. Referring to the relevant clauses of the agreement dated 4th December 2008, with K....
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....ecessary details with regard to sale of products and the profit generated therefrom as well as the accounting treatment of the capital subsidy received from Kureha Corporation, Japan. The learned Authorised Representative submitted, the Assessing Officer in the course of assessment proceedings, had not only enquired into the nature of capital subsidy received by the assessee but has completed the assessment after applying his mind to the claim made by the assessee and other relevant factors. The learned Authorised Representative submitted, once the Assessing Officer accepted assessee's claim there is no need for him to discuss the issue in the assessment order. The learned Authorised Representative submitted, irrespective of the accounting entries / treatment given by the assessee, the real nature of the subsidy has to be looked into as the accounting entries are not conclusive. In support of such contention, he relied upon the following decisions:- i) Tuticorin Alkali Chemicals & Fertilizers Ltd. v/s CIT [997] 227 ITR 172 (SC); ii) CIT v/s Chaphalkar Brothers (2013) 351 ITR 309; and iii) CIT v/s Kirloskar Oil Engines Ltd(2014) 364 ITR 88. 4. Lea....
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....n that the order passed was without making enquiries which should have been made. In support of his contention, learned Departmental Representative relied upon the following decisions:- i) CIT vs. Jawahar Bhattacharjee, [2012] 341 ITR 434 (Gau.); ii) Rampyari Devi Saraogi v/s CIT, [1968] 67 ITR 84 (SC); and iii) CIT v/s Paras Rice Mill, [2009] 313 ITR 182 (AT) (P&H). 6. As far as the merits of the issue is concerned, the learned Departmental Representative relying upon the reasoning of the revisional authority submitted that the agreement entered with Kureha Corporation, Japan, is basically an agreement for purchase of products manufactured by the assessee. Therefore, the amount received by the assessee even on account of subsidy would be towards sale of products and not for investment in plant and machinery. He, therefore, submitted, PCIT was justified in directing the Assessing Officer to examine the taxability of the subsidy received by the assessee during the year. 7. We have patiently and carefully considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. At the cost of rep....
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.... with supporting evidence. On a perusal of assessee's reply dated 18th November 2013, filed before the Assessing Officer, we have noticed that the assessee has made exhaustive submissions in support of its claim that the subsidy received being capital in nature is not taxable. It is also a fact on record that the assessee has reduced the amount of capital subsidy from the written down value of the plant and machinery to arrive at the actual cost in terms of section 43(1) and has claimed depreciation on such actual cost. Thus, from the aforesaid facts, it is clear that during the assessment proceedings, the Assessing Officer has not only made enquiry with regard to the capital subsidy received by the assessee but has also examined the nature and character of such subsidy. Only after applying his mind to the facts and material brought on record and submissions made by the assessee, the Assessing Officer has completed the assessment accepting assessee's claim. 8. Merely because the Assessing Officer in the assessment order has not made any mention about the subsidy received by the assessee, it cannot be presumed that the Assessing Officer has not enquired into or examined the natur....
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....to section 263, does not authorise or give un-fettered power to revisional authorities to revise each and every order on the pretext that in his opinion the Assessing Officer has not carried out enquiries or verification which should have been made. As observed earlier by us, the material on record demonstrate that in the course of assessment proceedings, the Assessing Officer has made enquiries / verification in respect of subsidy received by the assessee. Therefore, now we have to examine whether the view taken by the Assessing Officer to treat the subsidy as capital in nature can be construed to be a possible view. In this context, it is necessary to examine the agreement between the assessee and Kureha Corporation, Japan, providing for grant of subsidy to the assessee. As could be seen from the agreement dated 4th December 2008, between the parties a copy of which is at Page-88 of the paper book, it is for manufacture and sale of technical products by the assessee to Kureha Corporation, Japan. As per clause (2) of the agreement, assessee is required to manufacture chemical products only for Kureha Corporation, Japan, for the agreement period. Clause (2b) of the agreement furthe....
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....aid assessment year. Admittedly, the Revenue has not initiated any proceedings in assessment year 2010-11 for assessing the subsidy received as income of the assessee. Therefore, the nature and character of subsidy received by the assessee remaining the same a part of it cannot be treated as capital in one assessment year and the other part as revenue in another assessment year. Merely because the assessee has credited a part of subsidy to the Profit & Loss account it will not change the nature and character of the subsidy being treated as capital. The Hon'ble Jurisdictional High Court in CIT v/s Nirav Modi, [2016] 71 taxmann.com 272 (Bom.) after taking note of the ratio laid down by the Hon'ble Supreme Court in CIT v/s Amitabh Bachchan, [2016] 384 ITR 200 (SC) and the requirement of the Assessing Officer to discuss every issue in the assessment order has held as under:- "6. The assessment in question was set aside by the learned C.I.T. by the order dated 20th March, 2006 on the principal ground that requisite and due enquiries were not made by the Assessing Officer prior to finalization of the assessment by order dated 30th March, 2004. In this connection, the lea....
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....lation on that basis are not tenable. Accordingly, the learned Tribunal allowed the appeal of the assessee and reversed the order of the suo motu revision dated 20th March, 2006." 10. The Hon'ble High Court finally held that in a case where the Assessing Officer had enquired into the issue, even if the Commissioner of Income Tax was of the opinion that the view of the Assessing Officer is not correct, he would not be able to exercise power under section 263 of the Act. The Hon'ble Court also reiterated the legal principle that if the view taken by the Assessing Officer is a possible view interference under section 263 of the Act is not permissible. 11. Moreover, a perusal of the impugned order of the PCIT would demonstrate that, though, he has held the assessment order to be erroneous and prejudicial to the interests of Revenue, in the absence of proper enquiry regarding the nature and character of subsidy received, however, ultimately he himself has not given any finding with regard to the nature and character of subsidy received by the assessee and left the issue open for decision of the Assessing Officer. In our view, the direction of the revisional authority to st....