TaxTMI 
TaxTMI 
2026 (1) TMI 182
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.... 17.05.2020 143(1) ITA No.1423/PUN/2025 2019-20 Assessee 17.05.2020 143(1) ITA No.114/PUN/2025 2020-21 Revenue 20.12.2021 143(1) ITA No.157/PUN/2025 2020-21 Assessee 20.12.2021 143(1) 2. We will first espouse the appeals ITA Nos.154 to 156/PUN/ for the A.Yrs. 2016-17 to 2018-19. We take up ITA No.154/PUN/2025 for A.Y. 2016-17 as the lead case. Assessee has raised following grounds of appeal : "The following grounds of appeal are taken independently and without prejudice to one another. 1. The Ld. CIT(Appeals) has erred in dismissing the Ground No. 2 of the assessee in respect of disallowances of Rs. 62,169/- and Rs. 60,93,292/- made by the Assessing Officer on account of late payment of ESIC and PF beyond the period prescribed under the ESIC and PF Acts respectively. 2. The Ld. CIT(Appeals) has erred in dismissing the Ground No. 3 of the assessee in respect of the addition of Rs. 43,20,39,280/- made by the Assessing Officer on account of the capital subsidy received from the Maharashtra Government under the Package Scheme of Incentives (2007), by treating it to be of revenue nature. The CIT(App....
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.... assessee that post amendment in section 2(24)(xviii) inserted by Finance Act, 2015 effective from 01.04.2016 assessee in accordance with the provisions of Explanation 10 to clause (1) of section 43 of the Act has already been taken into account the amount of subsidy for determination of the actual cost of assets for computing the depreciation in the computation of income filed along with return of income of income for the assessment year under consideration. However, ld. AO was not satisfied with these arguments and submissions and was of the firm view that subsidy in question is not for acquiring any fixed assets and it has been granted to the assessee for encouraging the business and generation of profits and is taxable for the year under consideration. Further, ld. AO has made other disallowances including disallowance made u/s.36(1)(va) of the Act for delay in deposit of Employees contribution to Provident Fund/Employees State Insurance (PF/ESI) of Rs. 61,55,461/- along with the addition for subsidy received under PSI, 2007 of Rs. 43,20,39,380/-. Income assessed at Rs. 36,62,36,830/-. 4. Similarly, ld. AO made addition of Capital Receipt for A.Ys. 2017-18 and 2018-19 at Rs.....
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....24 Cr. 42,44,147,64 & 170 5 2020-21 43.41 Cr. 43.41 Cr. 6,10,72 & 73 2. The Ld. Departmental Representative (DR) has argued that the subsidy received by the assessee from Government of Maharashtra under the Package Scheme of Incentives (PSI) (2007) (Mega Project) is taxable as income u/s 2(24)(xviii), because explanation (10) to Section 43 of the Income Tax Act is not applicable to the above subsidy for the reason that it is not relatable to the cost of any asset. The argument of the Ld. Departmental Representative is that even though the assessee in terms of the explanation (10) to Section 43 of the Income Tax Act has taken into account the said subsidy for determination of the actual cost of the assets for claiming depreciation as per Income Tax, the said subsidy is nevertheless to be treated as income under clause (xviii) of Section 2(24) of the Income Tax Act as the subsidy is not relatable to any asset. 3. At the outset it is respectfully submitted that, if the argument of the Ld. Departmental Representative is to be accepted as correct and the subsidy is to be treated as income, the depreciation forgone/given up by the assessee by ....
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....Government grants as income. The Accounting Standard Committee, which drafted the ICDS, has also examined the suggestions/comments received during public consultations and suggested that the issue of legislative amendment for bringing certainty in this matter may be examined. In order to avoid any future litigation and controversy in this matter, the definition of income under clause (24) of section 2 of the Income- tax Act has been amended 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 determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (2) of section 43 of the Income-tax Act." A perusal of the above para clarifies that before introducing the said clause (XVIII) to Section 2(24) of the Income Tax Act, the existing provisions of explanation (10) to section 43(1) of the Inc....
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....either reduce the amount of Government Grant/Subsidy, which is although not relatable to acquisition of assets, from the cost of assets for claiming depreciation under the Income Tax Act, as per the method provided in explanation (10) to section 43(1) of the Income Tax Act for Government Grants/Subsidy relatable to acquisition of assets or in the alternative treat the said Government Grant/Subsidy as income. It is further respectfully submitted that the above option is not available to the assessee in respect of Government Grant/Subsidy which are relatable to acquisition of assets, which has to be compulsorily reduced from the cost of the assets for claiming depreciation under the Income Tax Act. Para 5.1 of the explanatory notes has explained the treatment to be given to the Government Grants/Subsidy not relating to acquisition of an assets view of the new clause (xviii) of Section 2(24), in contradiction to the treatment of Government Grants/Subsidy which is relatable to acquisition of depreciable assets. Para 5.1 have referred to Government Grants relating to depreciable assets in contradiction to the Government Grants not relating to depreciable assets. Theref....
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.... Income Tax. (Paper Book page No. 5, 9 and 79 para 4.2) Accordingly clause (xviii) of section 2(24) does not apply. Kindly refer to synopsis of the submissions and arguments (Annexure A). (b) It was argued by the Ld. DR that since the government subsidy received in this case, is not relatable to any assets the explanation 10 to section 43 (1) of the Act does not apply in this case, and that the fact that the assessee has reduced the amount of subsidy from the cost of assets for claiming deprecation will not absolve the assessee from the rigour of clause (xviii) added to the definition of income u/s 2(24) of the Act from A.Y. 2016-17. As submitted in the synopsis of submissions enclosed at (annexure A), the amendment to section 2(24) of the Act by adding the sub clause (xviii) itself has been brought to deal with such subsidy that are not relatable to any assets. In this regard it is submitted that from A.Y. 2016-17 onward to decide as to whether the amount of government subsidy will be treated as income by application of the said clause (xviii) of section 2(24) or not, the applicability of explanation 10 to section 43(1) is not relevant. In order to exclu....
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.... 176 taxmann.com 27 (Mumbai-Trib) 3. JCIT (SD) Vs. Kute Sons Dairys Ltd. (2025) 170 taxmann.com 636 (Pune Trib.) 4. The Thane Zilla Madhyamik Shikshak Sangh Sahakari Patpedhi Maryadit Vs. ACIT - ITA Nos. 1249 and 1250/MUM/2017 dated 17.05.2017 5. Atharva Polymers Private Limited Vs. DCIT - ITA No.1912/PUN/2019 dated 06.07.2022 6. The PCIT Vs. M/s. Welspun Steel Ltd. - Income Tax Appeal Nos. 1743, 1744, 1834/2016 and ITA No.15/2017, dated 26.02.2019 9. We have heard the rival contentions and perused the record placed before us and have carefully gone through the submissions as well as the decisions/judgments relied on by both the sides. The issue before us is regarding the taxability of the subsidy of Rs. 43,20,39,280/- received during the year by the assessee from the Government of Maharashtra for Mega Projects under the Package Scheme of Incentive, 2007. Such type of subsidy has been received by the assessee in the past also and the assessee has been claiming it to be a Capital receipt not liable to be taxed and similar issue came up for our consideration for the immediately preceding A.Y. 2015-16 in ITA No.201/PUN/2025 dated 10.12.2025 and t....
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....sets to be disbursed in the form of refund of octroi, electricity duty exemption, entry tax refund, VAT etc. over a period of 8 years. Then the next question, that arises for consideration in such circumstances is that, can be it said that subsidy is granted to meet the cost of the actual fixed assets, merely because the amount of subsidy is calculated in term of certain percentage of investment in fixed assets. The Hon'ble Supreme Court had an occasion to consider the identical issue in the case of CIT vs. P.J. Chemicals Ltd., 210 ITR 830 and after review of the case law on the point, the Hon'ble Supreme Court held as under :- "Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost. The expression 'actual cost in section 43(1) of the Income-tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incide....
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.... taking this view by the decision of the Hon'ble Bombay High Court in the case of Welspun Steel Ltd. cited supra. This decision being that of Jurisdictional High Court is binding on us. Therefore, it is not necessary for us to deal with the decision of the Hon'ble Delhi High Court in the case of Steel Authority of India Ltd. (supra) and the Hon'ble Karnataka High Court in the case of Shree Renuka Sugars Ltd. (supra) relied upon by the ld. CIT-DR. Therefore, we do not find any merit in the ground of appeal no.2 and 3 filed by the Revenue. Accordingly, ground of appeal no.2 and 3 stands dismissed." 9. From perusal of the above finding of this Tribunal, we find that the same is squarely applicable on the facts of the instant case and this Tribunal has held that since the provisions of Explanation 10 to section 43(1) have no application to the case of the assessee, the question of applicability of proviso to Explanation 10 to section 43(1) of the Act does not arise. In other words, the Tribunal has held that since the alleged subsidy received by the assessee is not relatable to any Fixed Asset, therefore, Explanation 10 to section 43(1) will not apply. Further, the Tribunal ta....
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....of which the depreciation claim has been reduced. Whether such treatment given by the assessee is correct or not needs to be examined. 13. We note that post amendment in section 2(24)(xviii) of the Act, the subsidy is required to be treated as income for the year other than the subsidy or grant 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 subsidy or grant by the Central Govt. for the purpose of the corpus of a trust or institution established by the Central Govt. or a State Govt. as the case may be. Claim of the assessee is that it falls under clause (a) of section 2(24)(xviii) and therefore it has reduced the subsidy from the actual cost of the asset in accordance with the provisions of Explanation 10 to section 43(1) of the Act. We note that Explanation 10 to section 43(1) comes into operation where the subsidy is received by the assessee towards acquiring of the fixed assets. It only deals with two situations, firstly where the subsidy is received specifically for a particular asset, then in such case so much such cost as is relatable to such subsidy or grant or re....
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....the provisions to Explanation 10 to section 43(1) have no application to the facts of the present case. We are forfeited in taking this view by the decision of the Hon'ble Bombay High Court in the case of Welspun Steel Ltd. cited supra. This decision being that of Jurisdictional High Court is binding on us. Therefore, it is not necessary for us to deal with the decision of the Hon'ble Delhi High Court in the case of Steel Authority of India Ltd. (supra) and the Hon'ble Karnataka High Court in the case of Shree Renuka Sugars Ltd. (supra) relied upon by the ld. CIT-DR. Therefore, we do not find any merit in the ground of appeal no.2 and 3 filed by the Revenue. Accordingly, ground of appeal no.2 and 3 stands dismissed." 16. In the above finding of this Tribunal, it has been clearly held that the amount of subsidy is not to be deducted from the actual cost u/s.43(1) of the Act for the purpose of calculation of depreciation and the provisions of Explanation 10 to section 43(1) have no application to the facts of the present case. This is a clear cut factual finding of this Tribunal holding that assessee's case does not fall in Explanation 10 to section 43(1) of the Act. Even during t....
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.... not part of the actual cost of plant or machinery. The Court, therefore, held that it could not have been deducted towards costs of acquisition. The Court held as under:- "We have carefully considered the provisions relating to the grant of cash subsidy under the schemes framed by the Central Government and the State Government. The Central Government as well as the State Government noticed that areas specified as backward areas and tribal areas were undeveloped or under-developed. Entrepreneurs were not willing to set up industries in such undeveloped or under- developed areas. The industries were concentrating only in urban areas. In other words, rapid urbanization was taking place. So far as the State of Gujarat is concerned, there was rapid industrial growth in cities like Baroda, Ahmedabad and Surat resulting in strain on municipal services. Urbanization created several problems such as pollution, growth of slums etc. It was also necessary to have balanced growth of industry in different regions. However, as pointed out above, entrepreneurs were reluctant to set up industries in backward areas. These areas were identified as backward because there was un-development ....
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....n other words, it was the value of the fixed assets which formed the basis for computation of subsidy to be granted under the scheme. Subsidy, in our opinion, did not meet the cost of the fixed assets directly or indirectly. Under the scheme of the Central Government or the scheme of the State Government, cash subsidy was quantified by determining the same at a specified percentage of the value/ cost of the fixed assets. Therefore, as observed above, the basis adopted for determining the cash subsidy with reference to the cost or value of fixed assets was only a measure for quantifying the subsidy and it could not be said that the subsidy was given for the specific purpose of meeting any portion of the cost of the fixed assets. The subsidy was granted to compensate the entrepreneur for the hardship and inconvenience which he might encounter while setting up industries in backward areas." 11. Similar issue came up for consideration again before the Gujarat High Court in CIT v/s. Swastik Sanitary Works Ltd., reported in 286 ITR 544. It was a case in which, the Government subsidy was intended as an incentive to encourage entrepreneurs to move to backward areas and establish i....
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....assessment order, that it has been granted towards Electricity duty exemption for a period of 7 years, exemption from payment of stamp duty and industrial promotion subsidy. We also take note of the Industrial Promotion Subsidy which means an amount equivalent to the percentage of 'Eligible investments' which has been agreed to as a part of the customised package or the amount of tax payable under Maharashtra Value Added Tax Act (MVAT), 2002 and Central Sales tax (CST) Act, 1956 by the eligible Mega Projects in respect of sale of finished products eligible for incentives before adjustment of set off or other credit available for such period as may be sanctioned by the State Govt., less the amount of benefits by way of Electricity Duty exemption, exemption from payment of Stamp duty (as may be specified by the Government) availed by the eligible Mega Projects under PSI, 2001/2007 whichever is lower and also the claim of subsidy is required to be made on annual basis. On depth analysis of the Package Scheme of Incentives for Mega Projects by the assessee under the consideration, we find that alleged subsidy received by assessee is not relatable to any fixed asset and therefore the ca....
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....ial Year and the deduction may be allowed for the same u/s 36(1) (va) of the Income Tax Act. 3. The appellant craves leave to add to or amend/modify or delete any or all of the above grounds of appeal." Grounds for A.Y. 2020-21(cross appeal by assessee) : "1. The ld. Addl/Joint CIT(Appeals) has erred in confirming the addition of Rs. 62,32,826/- made by the Assessing Officer on account of late payment of PF and ESIC into the relevant funds. 2. The appellant craves leave to add to or amend/modify or delete any or all of the above grounds of appeal." Commonly raised Additional Ground for A.Ys. 2016-17 to 2020-21 (except figures). Additional Ground raised for A.Y. 2016-17 is reproduced below: "The total payments of Rs. 61,35,312/- made by the assessee to the government account in respect of the employee's contribution to ESI of Rs. 41,707/- and the employee's contribution to the Provident Fund of Rs. 60,93,605/- disallowed by the department for the reasons that the said payments have been made after the due dates falling in a particular month; say April 2015 may be treated as payments made against the due dates of payments ....
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....bution towards PF/ESI for the month of May, 2015. Similar analogy has been drawn for the remaining amount as well as other assessment years under appeal. The only prayer is that the matter may please be restored to the file of ld. Jurisdictional Assessing officer who can carry out necessary verification and if contention is accepted then the assessee is eligible to part relief. Submission of ld. Counsel for the assessee reads as under : "2. The above disallowance has been challenged by the assessee before the Hon'ble Tribunal vide ground No. 1 of its appeal. On receipt of the notice of hearing from the Hon'ble Tribunal, on verification/appreciation of the matter while preparing the appeal, it has been realized that the payment of the above dues to the government account in the month of April 2015, though was made after the due dates falling in April 2015 as specified by the ESI Act and Provident Fund Act, these payments would qualify as payments u/s 36(1)(va) of the Act against the respective amounts due for payment in the next month of May 2015, as these payments disallowed for the month of April 2015 have been made before the due dates of payment falling in the m....
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.... A.Yrs. 2016-17 to 2020-21 and Ground No.1 for Cross Appeals for A.Yrs. 2019-10 and 2020-21 to the file of ld. Jurisdictional Assessing Officer for necessary adjudication. Needless to mention that ld. JAO shall afford reasonable opportunity to the assessee. Additional Grounds of appeal raised by the assessee are allowed for statistical purposes. 23. Apart from the above two issues, the only issue not common for all the assessment years 2016-17 to 2018-19, is the one raised in A.Y. 2018-19 in Ground No.1 that ld.CIT(A) erred in upholding the addition of Rs. 3,11,609/- on account of alleged understated receipt by way of duty draw back. 24. Apropos this issue, we observed that this issue has arisen as ld. AO took the amount of duty draw back received by the assessee as per Export/Import data at Rs. 16,57,423/- whereas the assessee has shown duty draw back at Rs. 13,45,814/- therefore ld. AO observed that the assessee understated the receipts. Observation of ld. AO has been affirmed by ld.CIT(A) by the First Appellate proceedings. 25. Before us, ld. Counsel for the assessee has submitted that reconciliation chart has been prepared and there is no difference in the figure of du....
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....sessee was not obligated to spend the subsidy received from the Govt. of Maharashtra under the Package Scheme of Incentive, 2007 in the form of interest subsidy, electricity duty exemption, royalty refund, octroi/entry tax refund etc., for any specific purpose which meant that the resulting greater profitability was an incentive for investors to establish/expand units promoting industrialization and employment opportunities and therefore, such receipts are liable to be taxed as revenue receipts, in terms of Section 2(24)(xviii) of the Income Tax Act, 1961 as the same did not fall under the exceptions provided in clause (a) or (b) of the said provisions. 4. The appellant craves leave to add to, amend, alter any of the above grounds of appeal." 28.1 Identical grounds have been raised by the Revenue in ITA Nos. 1844/PUN/2024 and ITA No.114/PUN/2025 for A.Y. 2019-20 and 2020-21 respectively. 29. The common issue raised by the Revenue against the finding of ld.CIT(A) is regarding the prima-facie adjustment made by the CPC u/s.143(1)(a) of the Act disallowing the assessee's claim of exempt income in the form of subsidy received from the Govt. of Maharashtra for Mega Projec....
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....h centralised processing of returns, in the Finance Act, 2008. (iii) As per the 1st proviso to section 143(1)(a), nпо be made unless of the proposed adjustment shall communication/notice adjustments is given to the assessee to file its response within 30 days from the issuing of the communication/notice. In this case though the communication (Annexure H) has been issued, but it does not contain any query regarding application of section 2(24) (xviii) or about any mismatch. The Reliance is placed on the following judgments in this regards. A. Arham Pumps [2022] 140 Taxmann.com 204 (Ahmedabad - Trib.). B. Camellia Educare Trust [2023] 152 taxmann.com 304 (Kolkata - Trib.). C. Kailash Narayan Shridhar [2025] 177 taxmann.com 755 (Ahmedabad - Trib.)." 34. We have heard the rival contentions and perused the record placed before us. Two fold issues have been raised by the Revenue, firstly the adjustment made by CPC adding the amount of subsidy received by the assessee during the year as income has rightly been made under the provisions 143(1)(a) of the Act and such prima-facie adjustment by CPC has been made correctly and secondl....
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....ides that the adjustment is required to be made for any incorrect claim if such incorrect claim is apparent from any information in the return. As discussed above, there is an apparent mistake in the ITR where on one hand the assessee is claiming a particular income to be exempt under Schedule BP for the Income from Business or Profession and on the other hand he has not mentioned any detail under the relevant column EI which requires the assessee to furnish details of exempt income, nature of income and the section under which such exemption is claimed. 36. We also observe that such adjustment has arisen because the assessee is itself not clear as to whether he wants to claim subsidy as exempt income or it wants to reduce it from the cost of assets. We have gone through the audited financial statements where we find that the assessee has credited the total subsidy received during the year in the profit and loss account and has not reduced it from the assets and the same is verifiable from the Fixed Asset chart attached to the balance sheet. Assessee has not reduced the cost of assets in its books of account. However, while filing the ITR on one hand it is claiming it as exempt ....