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2019 (2) TMI 1837
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....he Assessing Officer made couple of additions i.e. (i) the disallowance on account of depreciation involving the provisions of the Explanation 10 to section 43(1) of the Act amounting to Rs. 3.48 crores; and (ii) the addition of Rs. 4,00,004/- in view of the discrepancy between the figures in TDS/Forms and in the Form No.26AS. 3. During the assessment proceedings, the Assessing Officer noted the assessee received subsidy and the assessee claimed the same as the capital receipt. After due verification, the Assessing Officer allowed the claim of the assessee. Having held, the Assessing Officer invoked the Explanation 10 to section 43(1) of the Act and mentioned that when the subsidy is a capital nature, the same should be reduced from the "actual cost" of the assets and claimed the depreciation on the reduce value. In the process, the Assessing Officer distinguished the Supreme Court judgement in the case of CIT vs. Ponni Sugars & Chemical Ltd. vide Civil Appeal No.5694 of 2008 dated 16th September, 2008. Further, the Assessing Officer discussed the provisions of clause (xviii) to section 2(24) of the Act read with the said Explanation 10 in support of the above finding. Relevant ....
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....tion 2(24) clause (xviii) and explanation 10 to section 43(1) itself intended towers taxing capital subsidy by reducing it from WDV over the period of time. Accounting standard 9 also clearly intends this. d. This issue has been also upheld in the following cases: i) In the case of Limtes Tea & Industries Ltd. Hon'ble Kolkata ITAT Bench B has stated held that "Section 2(24) read with section 43(1) of the Income-tax Act, 1961 - Income - Definition of (subsidy) - Assessment year 2006-07 - Whether insertion of sub-clause (xviii) in section 2(24) by Finance Act, 2015, with effect from 1-4-2016, does not have retrospective effect - Held yes - During relevant year, assessee received subsidy from Tea Board and Ministry of Commerce & Industry, Government of India - Assessing officer treated said subsidy as revenue in nature and brought same to tax - He also reduced value of subsidy from 'actual cost' of machinery on which depreciation had to be allowed in accordance with Explanation 10 to section 43(1) - Whether prior to aforesaid amendment, if a subsidy was regarded as revenue subsidy, it would be taxable besides value of subsidy getting reduced from actual cost of depre....
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....ment (supra). The relevant lines of the said show-cause notice are extracted hereunder :- "3.1. .......... Thus in view of the above facts and after considering various case laws related to the subsidy availed by the assessee. subsidy as a revenue receipt A.O. treated the and accordingly finalized the assessment after making an addition of Rs. 37,84,89,268/- as a revenue receipt. However, for A.Y. 2013-14, the assessment in the case was finalized after considering the subsidy as a capital receipt. The Assessing Officer did not nature of subsidy in light of facts and judicial pronouncement laid down by the Hon'ble Supreme Court in the case of Sahney Steel correctly and therefore, the assessment order passed by the Assessing Officer is found erroneous and prejudicial to the interest of revenue. 3.2 Further, the CASS reason for selection of case for scrutiny for the A.Y. 2013-14 was "Large Share Premium Received". During the course of assessment proceedings, the erstwhile A.O. while examining the parties who had introduced the share premium, had not verified the creditworthiness and genuineness of the parties in the said transactions. It would not be irrelevant to me....
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....ficer for proper inquiries on issues indicated in the show cause notice as well as Para 3 and 3.1 of this order. Therefore, I set aside the assessment order u/s 143(3) of the I.T. Act, 1961 dated 23.03.2016 passed by the Assessing Officer for A.Y. 2013-14. The Assessing Officer is directed to give adequate opportunity of being heard to the assessee, call for relevant evidences/ details/ information/ explanation on various issues from the assessee and after examining the assessee's submission/ explanation/ evidences and conducting necessary enquiries, if any, pass a fresh assessment order in accordance with applicable provision of the law." In para 3 and 3.1 of the order of the Pr.CIT, the Pr.CIT considered various judgments on the issue of capital nature of the subsidy given under the Package Scheme of Incentives, 2007. 6. Further, on the issue of 'share premium' related addition, the Pr.CIT was of the opinion that the Assessing Officer did not verify the genuineness and creditworthiness of the parties and took a special reference to the contributors of members i.e. (i) Giridhari S. Kale, (ii) Prajakta G. Kale and (iii) Alok G. Kale. These subscribes share the common address ....
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....erest of revenue for the reason that the Assessing examined the genuineness and credit worthiness of the parties and reasonableness of the share capital and share premium of Rs. 74,69,47,OOO/-, for application of section 68 and section 56(2)(viib) of the Income Tax Act read with rule 11UA of the Income Tax Rule. The Learned Pr. Commissioner of Income Tax has failed to appreciate that in the first place the share capital and share premium was received in Assessment Year 2011-12 and was therefore not relevant for the Assessment Year 2013-14 under consideration. Secondly the Assessing Officer has also examined the genuineness and creditworthiness of the parties in the assessment proceedings u/s 143(3) of the Income Tax Act for Assessment Year 2011-12. 4. The Learned Pr. Commissioner of Income Tax has erred on facts and in law in holding that it is necessary to examine the r.w.s 44AB of the Income Tax Act as the Assessing Officer did not inquire in to this aspect. The Learned Pr. Commissioner of Income Tax has ignored the fact noted by himself on page 18 of his order that the tax audit report dated 21-02-2014 was The Learned Pr. Commissioner of Income Tax has....
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....e I.T. Rules; and (iii) the applicability of the provisions of section 271B r.w.s. 44AB of the Act qua the provisions of section 263 of the Act. 10. Referring to the issues at Sl.No. 1 and 2 (above), ld. Counsel argued that these issues were scrutinized at length by the Assessing Officer during the original assessment proceedings and, therefore, the opinion of the Pr.CIT constitutes a case of substituting his opinion with that of the opinion of the Assessing Officer. In that case, the revisional order of the Pr.CIT is unsustainable in law in view of the binding Hon'ble Supreme Court judgement in the case of Malabar Industrial Co. Ltd. vs. CIT (109 Taxman 66). 11. At the outset, ld. Counsel submitted that the issues at Sl. No.3 and 4 (above) are not borne out of the show cause notice dated 21.03.2018 and these issues were decided without finding place in the said show cause notice. Relying on various decisions, ld. Counsel submitted that these issues are required to be dismissed as outside the purview of the provisions of section 263 of the Act. 12. We shall now deal with each of these issues in the following paragraphs. I. Subsidy Issue - PSI, 2007 13. The assessee r....
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.... Kashmir High Court in the case of Shree Balaji Alloys and Others Vs. CIT, 333 ITR 335 (J&K) were discussed in the said order of the Tribunal. While this being the law on this issue of treatment of subsidy, the Assessing Officer rightly treated the subsidy as a capital receipt in the assessment order dated 23.03.2016 by discussing it elaborately in para 4 to 4.4 of the said order. 17. As per ld. AR, after much of scrutiny of the issue by Assessing Officer, the issue of show-cause notices/questionnaires, discussions etc. it is not proper to allege that the Assessing Officer failed to conduct due verification into the issue. As the issue was verified and an opinion is framed, the issue under consideration stands outside of the scope of section 263 of the Act. The ld. AR read out the contents of para 4.4 of the order of the Assessing Officer. The same read as follows :- "4.4 For the reasons mentioned above, assessee should have reduced the subsidy given by the State Government to that extent of Rs. 23,18,12,203/- and should have calculated the depreciation accordingly. However, assessee has failed to do so. As such there is an excessive depreciation allowed in the instant ....
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.... to be reduced from the cost of assets for disallowing depreciation, the revenue in the same breath cannot say that the assessment order passed allowing the claim of the assessee that the subsidy received was of capital nature, is erroneous and prejudicial to the interest of the revenue. (iv) In any case the Hon'ble Pune Bench of the Tribunal in the case of Innoventive Industries Ltd. 601/PUN/2013, after examination of the 'Package Scheme of Incentives 2007' of Maharashtra Government has held that the subsidy received under the said scheme is capital in nature. In the background of this legal position, even if the Hon'ble Tribunal comes to the conclusion in the present case that the Assessing Officer has not examined correctly, the nature of the subsidy before accepting the claim of the assessee that it was of capital nature, and the revision order of the CIT passed u/s 263 of the Act is to be upheld on this account, ultimately while passing the consequential assessment order, the Assessing Officer, will have to hold that the subsidy received by the assessee under the 'Package Scheme of Incentives 2007', was of capital nature. In view of th....
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....y is an income after the amendment. The said clause was further amended in 2017. After the amendment, the subsidy segment, which is capitalized to the actual cost is not the income and the assessee is allowed to claim the depreciation u/s 32 of the Act. These amendments do not apply to the assessment year 2013- 14 under consideration as the amendments apply prospectively only. Infact, the Assessing Officer examined all these issues before treating the subsidy as capital receipt. From this point of view merely based on the ground of verification of the issue by the Assessing Officer, invoking of the provisions of Section 263 of the Act is uncalled for and unsustainable under law. We find merit in the same and uphold the view taken by the Assessing Officer in regular assessment order. Accordingly, the ground no.1 and 2 raised in the appeal on this issue are allowed. II. Issue relating to Share Premium & Application of Section 56(2)(viib) of the Act. 22. Regarding the requirement of verification of the share premium received by the assessee the facts include that the assessee raised the share capital and the share premium from concerns and the details of which are extracted as u....
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....IT to the A.O. to examine the applicability of section 56 (2) (viib) is unsustainable in law, as held in Geometric Software Solutions Co. Ltd. 32 SOT 428 (Mumbai), Krishik Bharti Co-Operative Ltd 80 Taxmann.Com 326 (DEL) and Wind World India Investment P Ltd 86 Taxmann.Com 279 (MUM). 24. From the above, it is evident that the share premium was actually received by the assessee in the year relevant to the assessment year 2011- 2012. In that case, no addition could be made by invoking the provisions of Section 68 of the Act in the assessment year 2013-14 under consideration. It is the submission of the assessee that detailed verification was undertaken by the Assessing Officer during the assessment proceedings for the assessment year 2011-2012. Mentioning that the Pr.CIT failed to issue any show cause notice on this issue of share capital/share premium, ld. AR submitted that cancellation of the assessment order of Assessing Officer on this account is unsustainable in view of the decision in the case of Geometric Software Solutions Co. Ltd. 32 SOT 428 (Mumbai), Krishik Bharti Co-Operative Ltd 80 Taxmann.Com 326 (DEL) and Wind World India Investment P Ltd 86 Taxmann.Com 279 (MUM). F....
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....on initiation of penalty does not render the assessment order as erroneous and prejudicial to the interest of revenue, because initiation of penalty proceedings is not a part of the assessment order. (iii) It is submitted that penalty u/s 271B of the Act is leviable only for nonfiling of the tax audit report u/s 44AB of the Act and not for delay in filing of the tax audit report. The T.A.R. can be filed upto completion of assessment as held in K.K. Spun Pipe 284 ITR 301 {P.H.)I Apex Laboratories 384 ITR 364 (MAD)I Prachin Group ITA No 877/PN/20151 (2017) and Magick Woods Exports (P.) Ltd. 81 Taxmann.Com 231 (CHEN)." 28. On hearing both the sides on this issue, we find that the order of the Tribunal in case of Shri Nandkumar Bhalchandra Bhondve (supra) was decided in the context of the Assessing Officer's failure to initiate penalty proceedings u/s.271(1)(c) of the Act. The Pr.CIT assumed jurisdiction u/s.263 of the Act for making good of the said lapses of the Assessing Officer. On these facts in para 8 & 9 the Tribunal held that the Pr. CIT cannot initiate the penalty proceedings. The Assessing Officer should initiate such penalty proceedings during the assessment proc....