TaxTMI 
TaxTMI 
2024 (1) TMI 547
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....t that the subsidy was received by the appellant during the relevant previous year from Ministry of Food Processing of India, Government of India, on account of capital investment. 2b). That, the learned CIT(A) grossly erred, both on facts and in law, in not appreciating the appellant's submission to the effect that the Id. same AO who passed the subject assessment order, while subsequently framing the regular assessment under s.143(3) of the Act in the case of the appellant company for the immediately succeeding assessment year i.e. A.Y. 2013- 14, has duly considered and allowed the second installment of Rs. 25,00,000/- as in the nature of capital receipt itself and therefore, there was no occasion for the authorities below to classify and assess the first installment of the same subsidy as that of revenue in the nature. 2c). That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the action of the Id. AO in treating the first installment of the total subsidy of Rs. 50,00,000/- as that of revenue in the nature, without considering the settled position of the law as propounded by the Hon'ble Supreme Court in the case of CIT vs. Ponn....
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....ing the relevant previous year therefore, the AO has considered only said amount as expenditure incurred by the assessee towards the expansion of the unit. He has further submitted that even as per the sanction letter this amount of Rs. 25 lakhs was granted and paid as reimbursement of the expenditure already incurred by the assesse. The assessee has produced entire bills and vouchers before the AO in support of the expenditure. However, the AO did not consider bills and vouchers and given the reasons that the assessee has not produced the relevant evidence in support of the expenditure. He has further submitted that the Ministries of Food Processing Industry, Government of India has released total amount of Rs. 50 lakhs in two instalments of the 50% each to the assessee out of which first instalment was received during the year under consideration and second was received during the next assessment year i.e. 2013-14. The AO while passing the assessment order u/s 143(3) for A.Y.2013-14 has allowed this claim of subsidy as capital receipt towards reimbursement of the cost of expenditure of the unit. Thus, the disallowance made by the AO for the year under consideration is contrary to....
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.... 1. You have furnished a subsidy document vide F.No.7-86/09-CBP dated 25/04/2011 reflecting Rs. 25lac received by you as grants-inaid and as per para 2(b) of the said grant-in-aid, this grant-in-aid is reimbursement to the expenditure already incurred by the company. Hence furnish the head wise details of the expenditure so incurred relatable to the grants-in-aid so received alongwith relevant bills and vouchers thereof. Also furnish relevant ledger of the expenditure so incurred. 2. As per para 2a of the said grant-in-aid the grantee should execute a bond with two sureties to the president. Furnish the copy of the bond executed by you to fulfill the conditions pertaining to the grants-in- aid. 3. As requested therein you have to submit the required documents to the concerned bank branch with an undertaking to comply with all the conditions governing the sanction of the grant-in-aid. Hence furnish the copy of documents so produced before the concerned bank to avail the grants-in-aid." 5.1 Thus, the AO asked the assessee to furnish head wise details of the expenditure incurred in respect of the expansion of the plant for which grant-in-aid was received by ....
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....ioned therein but the assessee has not done so. As the assessee has failed to comply the instructions mentioned in the grants-in-aid dated 25/04/2011. Hence, grants-in-aid so received is treated as revenue receipt during the year and added to the income of the assessee. I am satisfied that the assessee has furnished inaccurate particulars of its income by not treating the subsidy as per the instructions laid down in grants-in-aid, by doing so has attracted the provisions of section 271(1)(c) of the Act. Accordingly, penalty proceedings u/s 271(1)(c) of the Act is initiated on this issue separately." 5.3 As it is evident from the reply reproduced by the AO that the assessee has stated that it produced voluminous bills and vouchers in support of the capital expenditure incurred before the AO for necessary verification whereas the AO has considered only ledger account and raised the objection that assessee failed to comply with the instruction made in grant-in-aid as well as failed to furnish evident in support of the claim. This observation of the AO is contrary to the reply itself which is reproduced in para 4.4 of assessment order. 5.4. We further note that as per letter of g....
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.... assessment is finalized as under:" 5.4 The AO has not doubted the claim of the grant-in-aid as received second instalment for F.Y.2012-13 relevant to A.Y.2013-14 based on the same facts of expenditure already incurred by the assessee. There is no dispute that grant-in-aid in question is in the form of reimbursement of the cost of asset and duly taken in the account in accordance with provisions of explanation (10) to clause(1) of section 43 of the Act. At this point it is appropriate to refer section 2(24)(xviii) of the Act inserted vide Finance Act 2015 as under: "2(24) Income includes (i) Xxxx xxxxxxx (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,- (a) the subsidy or 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 Gov....
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.... in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is....
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....idy is paid or the mechanism through which it is paid is immaterial and that what is relevant is the purpose for payment of assistance. Ordinarily such payments would have been on revenue account but since the purpose of the payment was to curtail/obliterate unemployment and since the purpose was dock extension, the House of Lords held that the payment made was of capital nature. 16. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 17. Applying the above tests to the facts of the present case and keeping in mind the object behind the payment of the incentive subsidy we are satisfied that such payment received by the assessee under the Scheme was not in the course of a trade but was of capital nature. Accordingly the first question is answered in favour of the assessee and against the Department." Accordingly addition made by the AO on this account is deleted. 6. Ground no.3: Ld. AR of the assessee stating at bar that assessee does not press this ground because of smallness of the addition but the same would not be a precedent for subsequent years. In view of submission of Ld. AR of the assessee ground no.3 is dismissed being not pressed. 7. In the result, appeal of ....