2021 (6) TMI 212 - AT - Income Tax

Accrual of income - interest earning from fixed deposits made from grant in aid - CIT-A deleted the addition - HELD THAT - The Government directive which has been relied upon by him is duly applicable for the current assessment year. As per the said direction the interest on unutilised grant has to be treated a part of the grant itself. Hence, it cannot be subject to tax by the Revenue. In this view of the matter, there is change in circumstances and the ITAT order relied upon by the Assessing Officer is not at all applicable. As at that time there was no direction for such treatment. Further submission and case laws referred by the learned Counsel of the assessee is duly applicable on the facts and circumstances of the case. Nothing was brought before us referring the cogent finding of learned CIT(A). Hence, we uphold the order of learned CIT(A). Unutilized revenue grant - AO treated the entire Revenue grant received as the income of the appellant in the year of receipt and accordingly, made an addition - CIT-A deleted the addition - HELD THAT - We find that policy of accounting for grant on receipt in current liability has been accepted by the Revenue in the earlier year. The utilisation of the same is duly accounted for. The unutilised grant is accepted in liability. Having accepted the above policy earlier the Assessing Officer is taking a different view in the current year. We agree with learned CIT(A) that on the principle of consistency the Assessing Officer s action is not justified without pointing out why contrary view from earlier year is being taken. Hence, we uphold the order of learned CIT(A). - Revenue appeal dismissed.

Summary

Issues Involved:

1. Deletion of ?13,76,73,805/- on account of interest earning from fixed deposits made from grant in aid.
2. Deletion of ?8,91,87,037/- of unutilized revenue grant in aid.
3. Entertaining a new additional ground without granting any opportunity to Revenue.
4. Deletion of penalty levied under section 271(1)(c) of the I.T. Act for A.Y. 2010-11.

Issue-wise Detailed Analysis:

1. Deletion of ?13,76,73,805/- on account of interest earning from fixed deposits made from grant in aid:

The assessee, a government company, received grants from the Maharashtra State Government for tourism development. Unutilized grants were parked in fixed deposits (FDs), earning interest. Up to AY 2006-07, this interest was taxed as 'Income from Other Sources'. However, an Office Memorandum (OM) dated 06/12/2006 directed that such interest be used only for the grant's purpose or returned to the government, changing its character to that of the grant itself. The Assessing Officer (AO) disregarded this change and made a disallowance based on earlier ITAT orders. The CIT(A) noted this policy change and deleted the addition, stating that the interest was diverted at source and not the appellant's income. The Tribunal upheld the CIT(A)'s decision, emphasizing the government's overriding title on the interest, thus confirming the deletion of ?13,76,73,805/-.

2. Deletion of ?8,91,87,037/- of unutilized revenue grant in aid:

The assessee received a revenue grant of ?15 crores for publicity, spending ?6.08 crores, and showing the unutilized ?8.91 crores as a current liability. The AO treated the entire grant as income in the year of receipt. The CIT(A) deleted the addition, noting the consistent accounting policy of crediting unutilized grants to current liabilities and recognizing them as income only when spent. This method, aligned with AS 12 and ICDS-VII, was accepted by the department in the past. The Tribunal upheld the CIT(A)'s decision, citing the principle of consistency and the absence of any material change justifying a different view, thus confirming the deletion of ?8,91,87,037/-.

3. Entertaining a new additional ground without granting any opportunity to Revenue:

The Tribunal did not specifically address this issue in the detailed analysis provided. However, it is implicit that the Tribunal found no merit in the Revenue's contention, as it upheld the CIT(A)'s decisions on the substantive issues.

4. Deletion of penalty levied under section 271(1)(c) of the I.T. Act for A.Y. 2010-11:

The CIT(A) deleted the penalty levied under section 271(1)(c) for AY 2010-11, related to the additions discussed above. Since the Tribunal upheld the deletion of these additions, the penalty did not survive. The Tribunal confirmed the CIT(A)'s order, thus dismissing the Revenue's appeal regarding the penalty.

Conclusion:

The Tribunal upheld the CIT(A)'s orders, confirming the deletion of additions related to interest on FDs and unutilized revenue grants, and the deletion of the penalty under section 271(1)(c). The Tribunal emphasized the change in government policy, the principle of consistency, and the concept of diversion of income by overriding title.