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2022 (9) TMI 148
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....the liabilities side of the balance sheet, is to be recognized as income by not appreciating the detailed explanation filed during the course of proceedings by the assessee and at the same time setting aside the order of the ao holding that the same is erroneous in so far as it is prejudicial to the interest of the revenue stating that the issues cannot be examined at this stage. 3. The appellant craves to alter, amend and modify any grounds of appeal. 4. Necessary cost be awarded to the assessee." 2. Briefly the facts of the case are that the assessee's case was selected under compulsory scrutiny, the AO has passed the assessment order u/s 143(3) of the IT Act dated 26.12.2019. The ld. Pr.CIT noted that the expenses incurred by the assessee company for the purpose of development of rural farmers land taken on lease, has been debited to profit and loss account as Revenue expenditure claimed as directed expenses related to agricultural income. However no complete and separate details available on record were filed before the AO. He has further observed that the assessee company has subsidy receipt of Rs. 1,32,18,600/- which is not found recorded as income in the....
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....r grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43; or (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be" 8. As per the above provision, any subsidy or grant given by Central Government for the purpose of the corpus of the institution established by Central or State Government will not be regarded as income. The memorandum explaining this exception as introduced by Finance Bill, 2016 is as under: "The Finance Act, 2015 had amended the definition of income under clause (24) of section 2 of the Act so as to provide that the income shall include assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determinatio....
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....f the ld. AR filed written synopsis reads as under:- "1. It is submitted that at paragraph 6 and 9 of its order, the Ld. PCIT at one hand is concluding that the amounts should have been passed through the profit and loss account and should have been included in the total income of the Appellant, and on the other hand, the Ld. PCIT is stating that the issues cannot be examined at this stage and set aside the assessment order to the AO. 2. Thus once the Ld. PCIT concludes that the non-refundable capital grant in aid of Rs 8,62,00,000 and interest subsidy of Rs 1,32,18,600 was to be included in the profit and loss account and to the total income of the Appellant to tax the same, her finding at the same time holding that issues cannot be examined at this stage is contradictory in itself. The Ld. PCIT cannot blow hot and cold in the same breathe. In this connection, reliance is placed on paragraph 22 of the order of the Mumbai Bench of the Tribunal in the case of Sir Dorabji Tata Trust Vs. DCIT(E) 188 ITD 38 dt. 28.12.2020 (Mum.) (Trib.) where it was observed as under: "22. Having said that, we may also add that while in a situation in which the necessary inqu....
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....Ld. PCIT should be expunged and the issue involve be decided by the Hon'ble ITAT on merit, otherwise in the guise of the directions given by the Ld. PCIT, the AO will be left with no alternative except to make the additions which will cause injustice to the Appellant. In relation to non-taxability of capital grant in aid of Rs 8,62,00,000 received from the Government of Rajasthan, the following was submitted to the PCIT vide submission dated 2 March 2022 1. The Appellant submitted that it was established by the Government of Rajasthan in collaboration with the PACS. Government of Rajasthan owns 24.22 percent share capital of the Appellant. As per section 44 of the Rajasthan Co-operative Societies Act 1960 (PB 10-11), Government of Rajasthan can hold a maximum of 25 percent of the total share capital of a short-term co-operative credit structure society and therefore the maximum shareholding of Government of Rajasthan in the Appellant cannot exceed 25 percent. 2. The State Finance Minister in the State Budget for financial year 2016-17 dated 8 March 2016 in Para 103 (PB 12) announced that to fulfill the norms set by Reserve Bank of India, the State Gov....
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....apital of Rs 268.37 lacs, the total subscribed share capital of the State Government amounted to Rs 603.06 lacs as on 31 March 2017, which represents 24.22 percent of the total subscribed share capital of the Appellant. Because of the embargo provided in the Rajasthan Co-operative Societies Act 1960, the Appellant was refrained from getting the entire capital fund of Rs 1130.37 lacs as share capital from the State Government. 8. Therefore, the capital grant of Rs 862 lacs provided by the State Government is not an income taxable under section 2(24)(xviii) of the Act as it is not a revenue grant or a grant to meet cost of any asset, rather it is a capital grant to maintain capital adequacy ratio and thus, is a capital receipt not chargeable to tax. In this connection, section 2(24)(xviii) of the Act is reproduced as under: "(24) "income" includes- (i) to (xviib) (xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than,- ....
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....lant is not taxable as income as explained above. 11. Further, the Income Computation and Disclosure Standards ("ICDS") - VII, relating to Government Grants, inter-alia provides at paragraph 2(b) that this standard is not applicable where the receipt is on account of Government participation in the ownership of the enterprise (PB 19- 20). Government has been defined to mean Central Government, State Governments, agencies and similar bodies, whether local, national or international. As elaborated above, the grant has been received by the Appellant towards ownership of the enterprise and therefore even as per the provisions of ICDS-VII, the receipt is not taxable as income of the Appellant. 12. Thus, in view of the above factual and legal position, the capital grant of Rs 8,62,00,000 is not taxable under the provisions of the Act and therefore order passed by the Ld. PCIT holding that the capital grant should have form part of profit and loss account of the Appellant and therefore liable to be taxed is incorrect and therefore on this the addition proposed by the Ld. PCIT is not sustainable in law. In relation to interest subsidy of Rs 1,32,18,600, the follo....
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....paid Central Government for 2% interest (1,14,04,192) Advisory dated 8 September 2016 issued by Apex bank enclosed at PB 31-32 3 Interest subsidy State Government 1,24,89,000 Advisory dated 31 March 2017 issued by Apex bank enclosed at PB 33-34 4 2% interest subsidy from Central Government 64,74,000 Amount receivable. Calculation enclosed at PB 35 5 Interest subsidy State Government 10,20,000 Amount receivable. Calculation enclosed at PB 36 Total 2,60,09,808 6. The ld. DR stands by the impugned order. He contended that when the CIT is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the AO, a conclusive finding is not possible one way or the other. Accordingly, he argued that in the given facts of the case, the PCIT, in the exercise of his powers under s. 263, was justified to set aside the assessment order, for lack of proper inquiry or verification, and directed the AO to conduct such inquiries/verifications afresh. 7. We have heard the rival submissions, perused the material on record and the impugned order. Admittedly, the AO ....