2018 (1) TMI 1615 - AT - Income Tax

Denial of natural justice - claim made by the assessee without filing a revised return - Sales tax subsidy as capital receipt OR revenue receipt - Revenue raising the issue of violation of Rule 46A of Income Tax Rules - as contended that when the fresh claim made by the assessee for exclusion of sales tax subsidy, otherwise than by filing a revised return, was not entertained by the AO CIT(Appeals) ought to have given opportunity the Assessing Officer to examine the said claim of the assessee as required by Rule 46A of the Income Tax Rules - HELD THAT - We find merit in the contention raised by the assessee in this regard that there being no additional evidence filed by the assessee before the ld. CIT(Appeals) in support of its claim for exclusion of sales tax subsidy, Rule 46A has no application and the ld. CIT(Appeals) was not required to give any opportunity to the Assessing Officer to verify the claim of the assessee. CIT (D.R.) has urged that such opportunity even otherwise deserves to be given to the Assessing Officer in the interest of substantial justice. CIT(Appeals), who is having co-terminus powers to that of the Assessing Officer, has already examined this issue in detail in the light of the material available on record including the scheme of the West Bengal Government under which the amount of sales tax subsidy in question was received by the assessee and after having satisfied himself on merit, he has allowed the claim of the assessee for exclusion of sales tax subsidy by treating the same as capital receipt not chargeable to tax. As this issue is squarely covered in favour of the assessee by the decision of the Hon ble Calcutta High Court in the case of Rasoi Limited 2011 (5) TMI 23 - CALCUTTA HIGH COURT and since the ld. CIT(Appeals) has given relief to the assessee on this issue by relying on the said decision of the Hon ble jurisdictional High Court, we are of the view that no cause of justice is going to be served by sending the matter back to the Assessing Officer for examination - uphold the impugned order of the ld. CIT(Appeals) allowing the claim of the assessee for exclusion of sales tax subsidy by treating the same as capital receipt not liable to tax and dismiss this appeal of the Revenue.

Summary

Issues Involved:
1. Whether the sales tax subsidy received by the assessee is a capital receipt not liable to tax.
2. Whether the claim for exclusion of sales tax subsidy can be entertained without filing a revised return.
3. Whether the ld. CIT(Appeals) violated Rule 46A of Income Tax Rules by not giving the Assessing Officer an opportunity to examine the claim.

Detailed Analysis:

1. Sales Tax Subsidy as a Capital Receipt:
The primary issue revolves around whether the sales tax subsidy received by the assessee under the "West Bengal Incentive Scheme, 1999" is a capital receipt and thus not chargeable to tax. The assessee argued that the subsidy was for setting up a new industrial unit and should be treated as a capital receipt. The ld. CIT(Appeals) supported this claim, referencing multiple judicial decisions, including the Supreme Court's rulings in CIT vs. Ponni Sugars & Chemicals Ltd. and Sahney Steel & Press Works Ltd., which emphasized the "purpose test" to determine the nature of the subsidy. The purpose of the subsidy in this case was to promote industrialization in backward areas, making it a capital receipt. This view was further supported by the Calcutta High Court in CIT vs. Rasoi Ltd., which held that subsidies aimed at industrial promotion are capital in nature.

2. Claim for Exclusion Without Revised Return:
The assessee made the claim for exclusion of the sales tax subsidy during the assessment proceedings without filing a revised return. The Assessing Officer rejected this claim based on the Supreme Court's decision in Goetz India Limited, which mandates that claims not made in the original return must be made through a revised return. However, the ld. CIT(Appeals) admitted the claim, citing judicial precedents that allow fresh claims during appellate proceedings, including decisions from the Supreme Court and various High Courts.

3. Violation of Rule 46A:
The Revenue argued that the ld. CIT(Appeals) violated Rule 46A of the Income Tax Rules by not giving the Assessing Officer an opportunity to examine the claim. However, it was determined that Rule 46A was not applicable as no additional evidence was filed by the assessee before the ld. CIT(Appeals). The ld. CIT(Appeals), having co-terminus powers with the Assessing Officer, thoroughly examined the issue and allowed the claim based on the material on record and relevant judicial decisions.

Conclusion:
The Tribunal upheld the order of the ld. CIT(Appeals), concluding that the sales tax subsidy received by the assessee is a capital receipt not liable to tax. The Tribunal also dismissed the Revenue's appeal concerning the violation of Rule 46A, noting that the ld. CIT(Appeals) had sufficient authority to examine and decide on the issue. The appeal of the Revenue was dismissed, and the order was pronounced on January 31, 2018.