TaxTMI 
TaxTMI 
2016 (1) TMI 1461
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.... investment of Rs. 55,77,582/- in the Site development during the year under consideration. The Valuation Officer gave preliminary report. Though it has been mentioned in the assessment order that the AO initiated proceedings u/s 147 on the basis of such valuation report and other issues, but factually reassessment was initiated on the basis of other reasons as reproduced infra. The assessment order was passed converting declared loss of Rs. 7.87 crore into a loss of Rs. 83,71,101/-. The assessee remained unsuccessful before the ld. CIT(A) against the initiation of reassessment proceedings. Certain additions made by the AO on merits were sustained while others were deleted, against which both the sides have come up in appeal before us on their respective stands. 4. We have heard the rival submissions and perused the relevant material. The first issue before us is challenge to the re-assessment proceedings. In order to properly evaluate the submissions made by both the sides on this issue, it would be relevant to note the reasons recorded by the AO on 7.12.2001 before issuing notice u/s 148, a copy of which is available on page 47 of the paper book, reading as under:- "1. On goin....
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.... is treating the sale of additional quota of sugar in free market amounting to Rs. 35,11,976/- as revenue receipt against the assessee's claim of capital receipt. The assessee earned profit of Rs. 35.11 lac from the sale of additional free sugar under Incentive scheme of the Government of India, which amount was not offered for taxation on the ground that it was a receipt of capital nature. The assessee was called upon to show cause as to why this amount be not treated as a revenue receipt in the light of the judgment of the Hon'ble Supreme Court in the case of KCP Ltd. 245 ITR 421 (SC). The assessee submitted that the facts of the case of KCP Ltd. (supra) were distinguishable. It was further explained that the said amount of Rs. 35.11 lac was in the nature of incentive given by the Government for repayment of term loans. The assessee relied on certain judgments in support of its contention that the amount was not a revenue receipt. Not convinced with the assessee's contentions, the AO came to hold that since the said receipt was to be used for the running of business and, hence, constituted a trading receipt. The ld. CIT(A) upheld the action of the AO by noticing that the assessee....
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....Ltd. and Ors. (2008) 306 ITR 392 (SC) has held that the subsidy for setting up sugar mills, to be utilized for repayment of term loans undertaken for setting up new units/expansion of existing business, is a capital receipt and not chargeable to tax. Adverting to the facts of the instant case, we find that the assessee is covered under the Incentive scheme dated 10.3.1993 as it was set up in 7.3.1994. It is so borne out from the letter dated 10.7.2000 issued to the assessee by the Government of India, Ministry of Food, Directorate of Sugar, a copy of which is placed at page 175 of the paper book, giving licence and covering it under the Incentive scheme dated 10.3.1993. Pursuant to the requirement of submission of Utilization certificate from a Chartered Accountant, the assessee submitted such certificate, a copy of which is available at pages 38 and 39 of the paper book. Such certificate indicates repayment of interest on loan to the financial institutions to the tune of Rs. 2.65 crore against which the amount of subsidy is only a sum of Rs. 35.11 lac. This exhibits that the object of subsidy given to the assessee is setting up of sugar mill and the mode of discharge of subsidy is....
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....ligible for deduction as business expenditure. Similar view has been taken by the Hon'ble Madras High Court in certain decisions including CIT vs. Salem Cooperative Sugar Mills Ltd., 229 ITR 285 (Mad). In view of several decisions taken note of by the ld. CIT(A) in the impugned order supporting the assessee's contention, which have not been controverted by the ld. DR with any contrary decision, we are of the considered opinion that the ld. first appellate authority has taken an unimpeachable view on this issue. We, therefore, uphold the impugned order on this score. 10. The third reason taken by the AO for initiating re-assessment is that the assessee incurred certain expenses to defend the case in connection with grant of licence to install the factory and all these expenses before the commencement of business were capitalized and bifurcated under the head of 'Building' and 'Plant & Machinery' which was incorrect as the same should have been done in the assessment year 2000-01. Taking cognizance of this reason, the AO discussed on page 32 of his order about certain pre-operative expenses which were capitalized by the assessee for which disallowance of Rs. 4,98,17,057/- was made. ....
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....ncome and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section...'. A bare perusal of the above provision manifests that the AO is fully empowered to bring to tax any other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings u/s 147, apart from the income escaping assessment on which the AO formed reason to believe about the escapement of income and issued notice u/s 148. The use of words 'and ' between the income escaping assessment forming reasons to believe for issuing notice u/s 148 and other income chargeable to tax which escaped assessment and comes to the notice of the AO in the course of the proceeding, amply shows that the existence of the former is a pre-condition for taxing the latter. To put it simply, if the grounds set out in the re-assessment notice are non-existent, i.e., either no addition is made on such grounds or the addition so made does not pass the scrutiny by the appellate forums, then, obviously, no further addition can be made for income which comes to his notice during the course of proceedi....