2019 (2) TMI 1837 - AT - Income Tax

Revision u/s 263 - Subsidy given under the Package Scheme of Incentives, 2007 - HELD THAT - We find that the subsidy received by the assessee under PSI, 2007 Scheme in the form of refund of sales tax, is of capital receipt and the same is not liable to tax. For this proposition, we rely on the decision of the coordinate bench decision of the Tribunal in the case of Rasiklal M. Dhariwal (HUF) Vs. DCIT 2011 (3) TMI 1619 - ITAT PUNE . Similar claim was allowed by the Revenue in the assessment year 2012-2013 also, in which case, the examination of the issue for establishment of true nature of subsidy shall only breed the multiplication of the proceedings. The same issue need not be examined every year, wherever subsidy is received by the assessee. Further, there is an amendment to the provisions of section 2(24) clause (xviii) of the Act by the Finance Act, 2015. The subsidy 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. Share Premium Application of Section 56(2)(viib) - treatment of Share premium u/s 68 of the Act cum the applicability of the provisions of section 56(2)(viib) of the Act read with Rule 11UA of the I.T. Rules - HELD THAT - We find that the Pr. CIT failed to issue show cause notice undisputedly. Therefore, in our opinion, the order of the Pr.CIT requires to be reversed on this issue. As such, ld.DR could not make out a case that the issue of share premium and the share capital relate in the assessment year 2013-2014 under consideration. The assessee s claim of receiving share capital/share premium in the assessment year 2011-2012 stand undisputed. Therefore, the assessee wins on this ground too. Accordingly, the ground no.3 stands allowed. Levy of Penalty u/s 271B r.w.s. 44AB - HELD THAT - We find that the order of the Tribunal in case of Shri Nandkumar Bhalchandra Bhondve 2016 (10) TMI 216 - ITAT PUNE 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 - matters relating to initiation of penalty proceedings u/s.271B of the Act is not approved. - Decided in favour of assessee.

Summary

Issues Involved:
1. Nature of subsidy received under the Package Scheme of Incentives, 2007.
2. Verification of share premium received and application of Section 56(2)(viib) of the Income Tax Act.
3. Applicability of penalty under Section 271B read with Section 44AB of the Income Tax Act.

Issue-wise Detailed Analysis:

I. Nature of Subsidy under PSI, 2007:
The assessee received a subsidy of ?23,18,12,203 from the Maharashtra Government under the PSI Scheme 2007, which was treated as a capital receipt. The Assessing Officer (AO) accepted this claim after thorough examination and discussion, invoking Explanation 10 to Section 43(1) read with Section 2(24)(xviii) of the Act, disallowing depreciation of ?3.48 crores by reducing the subsidy from the actual cost of the depreciable assets. The Pr.CIT, however, found the AO’s order erroneous and prejudicial to the interest of revenue, arguing that the AO did not correctly treat the subsidy receipts. The Tribunal upheld the AO's view, stating that the subsidy under PSI, 2007 is capital in nature and not liable to tax, referencing various judicial precedents, including decisions from the Hon'ble Supreme Court and High Courts. The Tribunal found no error in the AO's treatment of the subsidy and ruled that the Pr.CIT's invocation of Section 263 was unwarranted.

II. Verification of Share Premium and Application of Section 56(2)(viib):
The Pr.CIT argued that the AO failed to verify the genuineness and creditworthiness of the parties from whom the share premium was received and did not apply Section 68 and Section 56(2)(viib) read with Rule 11UA of the Income Tax Act. The Tribunal noted that the share premium was actually received in the financial year relevant to the assessment year 2011-12, and detailed verification was conducted by the AO during that period. The Tribunal held that the Pr.CIT failed to issue a show-cause notice regarding the share premium and share capital, making the cancellation of the AO's order on this ground unsustainable. The Tribunal allowed the assessee’s appeal on this issue, emphasizing that the share premium and capital received in the assessment year 2011-12 could not be questioned in the assessment year 2013-14.

III. Applicability of Penalty under Section 271B read with Section 44AB:
The Pr.CIT directed the AO to initiate penalty proceedings under Section 271B for failures under Section 44AB. The Tribunal referenced its decision in the case of Shri Nandkumar Bhalchandra Bhondve, where it was held that the Pr.CIT cannot direct the initiation of penalty proceedings under Section 263 as penalty initiation is not part of the assessment order. The Tribunal concluded that the Pr.CIT’s findings on the initiation of penalty proceedings were not justified and allowed the assessee’s appeal on this ground.

Conclusion:
The Tribunal allowed the assessee’s appeal, ruling that the AO’s treatment of the subsidy as capital receipt was correct, the share premium received in the assessment year 2011-12 could not be questioned in 2013-14, and the Pr.CIT could not direct the initiation of penalty proceedings under Section 271B in the context of Section 263.