2020 (11) TMI 301 - AT - Income Tax

Capital Grants Subsidies and Consumers' Contribution - addition on the ground that the appellant should transfer 15% of the total Grants/subsidies/consumer contribution received during the year as against 11.75% offered by the appellant - HELD THAT - Submissions of the assessee before us is that the uniform rate of 15% adopted by the CIT(A) is not justified. As per provisions of section 43(1) of the Act, the capital grant should be reduced from the cost/WDV of the relevant asset, and thereafter the depreciation is to be calculated. Thus, the capital grant receipt in respect of asset, on which depreciation is allowable at the rate different from 15% should be worked out as per the applicable rate. The DR could not point out any mistake in the above submission of the assessee, which we find is in accordance with law. Referring to decisions of Co-ordinate Benches of the ITAT in the case of the assessee itself 2019 (9) TMI 376 - ITAT AHMEDABAD and 2015 (6) TMI 1096 - ITAT AHMEDABAD we restore this issue to the file of Assessing Officer for re-adjudication as directed above after verification of the proportionate amount of grant relating to different assets and upon applying the actual rate of depreciation relates to those assets, therefore, this ground of appeal is allowed for statistical purposes. Correct head of income - interest income from staff loan and advances - income from other sources or business income - HELD THAT - On perusal of the material on record, we could not find similar component of income treated as business income in the case of group concern of the assessee Gujarat Urja Vikas Nigam Ltd. Under these circumstances, we restore this issue to the file of Assessing Officer for re-adjudication denovo after verification of components of income in the group concern Gujarat Urja Vikas Nigam Ltd. which was adjudicated as business income as per the decision of the Hon'ble Gujarat High Court 2020 (3) TMI 232 - GUJARAT HIGH COURT . In this regard, the assessee is directed to furnish the relevant material/detail in support of its claim in the light of the decision of the Hon'ble Jurisdictional High Court in the case of the group concern as supra. Accordingly, this issue is restored to the file of the Assessing Officer for deciding afresh. Disallowance of prior period expenses - As per AO assessee company has shown prior period income of ₹ 130.05 lacs after adjustment of prior period expenses - HELD THAT - As gone through the decision in Group concern Gujarat Urja Vikas Nigam Ltd. vs. ACIT for assessment year 1988-89 2017 (5) TMI 1718 - ITAT AHMEDABAD wherein similar issue has been set aside to the file of Assessing Officer for adjudicating afresh according to the direction laid down by the Hon'ble Gujarat High Court in the case of Adani Enterprises Ltd. 2016 (7) TMI 1564 - GUJARAT HIGH COURT - we restore this issue to the file of Assessing Officer for deciding de-novo after verification the facts and material as per the ratio laid down above. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of capital grants and subsidies to the extent of 15%.
2. Treatment of interest income from staff loans and advances as income from other sources.
3. Disallowance of prior period expenses.
4. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Capital Grants and Subsidies to the Extent of 15%:
The Assessing Officer (AO) observed that the assessee transferred only 11.75% of the year-end balance of government grants and subsidies to the Profit & Loss (P&L) account, while it should have been 15%. The AO added ?25,93,63,950/- to the income of the assessee. The CIT(A) upheld this addition, referencing a similar decision in the assessee's case for the assessment year 2009-10. During the appellate proceedings, the ITAT referred to its earlier decisions where the matter was remanded to the AO for re-adjudication. The ITAT directed the AO to verify the proportionate amount of the grant relating to different assets and apply the actual rate of depreciation. The issue was restored to the AO for re-adjudication after verification.

2. Treatment of Interest Income from Staff Loans and Advances as Income from Other Sources:
The AO treated the interest income from staff loans and advances, and other advances, totaling ?15,33,19,000/-, as income from other sources rather than business income. The CIT(A) upheld this treatment. During the appellate proceedings, the ITAT noted a conflicting decision by the Gujarat High Court in the case of Gujarat Urja Vikas Nigam Ltd., where such interest income was treated as business income. However, since the components of income in the assessee's case differed, the ITAT restored the issue to the AO for re-adjudication. The AO was directed to verify the components of income and decide afresh in light of the Gujarat High Court's decision.

3. Disallowance of Prior Period Expenses:
The AO disallowed prior period expenses amounting to ?4,08,01,000/-, stating that the assessee was following the mercantile system of accounting, and such expenses were not allowable. The CIT(A) upheld the disallowance. During the appellate proceedings, the ITAT referred to a similar issue in the case of Gujarat Urja Vikas Nigam Ltd., where the matter was remanded to the AO for fresh adjudication. The ITAT restored this issue to the AO for re-adjudication, directing the AO to verify the facts and material as per the ratio laid down by the Gujarat High Court in the case of Adani Enterprises Ltd.

4. Initiation of Penalty Proceedings Under Section 271(1)(c) of the Income Tax Act:
The CIT(A) dismissed the ground relating to the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. This issue was not elaborated upon further in the judgment.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, with the issues being restored to the AO for re-adjudication as per the directions and observations made by the ITAT. The AO was directed to verify the relevant details and decide afresh in light of the judicial precedents cited. The order was pronounced in the open court on 30-09-2020.