2022 (3) TMI 612 - AT - Income Tax

Revision u/s 263 by CIT - Total power subsidy and TUF subsidy were wrongly declared by the assessee - As per CIT nowhere it was mentioned in the assessment order by the AO that he has conducted necessary enquiry with regard to the above issues, such as, power subsidy and TUF subsidy and the AO failed to discuss the above two issues in the assessment order - AR contended that assessee is following mercantile system of accounting and has accounted the income received during the year in the profit loss account and amount receivable in the balance sheet and the power subsidy and TUF subsidy is granted by the Ministry of Textiles based on the interest payment made by the assessee-company to the banks - HELD THAT - We find force in the argument of the ld.AR who has demonstrated that the income accruing each year is accounted in the profit loss account under the head other income . Similarly,where the receivable of the subsidy is shown under short term loans and advances. Since the assessee is maintaining the books under mercantile basis, interest subsidy receivable under TUF scheme and the power subsidy receivable for the A.Y. 2014-15 represent the balance receivable from the Ministry of Textiles as on the date of balance sheet. Based on the merits and facts of the case, there is no escapement of any income and the amount of claim of subsidy made in the profit loss account is income accrued to the assessee for that particular accounting year. The ld.AR also explained that the following entries were passed in the books of accounts. Looking at the second limb as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue, one has to understand what is prejudicial to the interest of the revenue - in the case of Malabar Industries 2000 (2) TMI 10 - SUPREME COURT held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the AO. Their Lordships held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in law - there is no escapement of income which is prejudicial to the interest of the revenue as contemplated under section 263 of the Act and the impugned order of ld.PCIT under section 263 of the Act is quashed. The appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Whether the assessment order was erroneous and prejudicial to the interest of the revenue.
3. Proper accounting and taxation of power subsidy and TUF subsidy.

Detailed Analysis:

1. Validity of the order passed under section 263 of the Income Tax Act, 1961:
The assessee challenged the invocation of jurisdiction by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961. The PCIT had issued a show-cause notice and subsequently passed an order under section 263, considering the assessment order erroneous and prejudicial to the interests of the revenue. The PCIT directed the Assessing Officer (AO) to redo the assessment, citing that the AO failed to conduct necessary inquiries regarding the power subsidy and TUF subsidy.

2. Whether the assessment order was erroneous and prejudicial to the interest of the revenue:
The PCIT noticed discrepancies in the amounts of power subsidy and TUF subsidy declared by the assessee. Specifically, the PCIT pointed out that the subsidies receivable as on 31/03/2014 were not fully offered for taxation. The PCIT concluded that the AO did not apply his mind or conduct proper inquiries while passing the assessment order, thus invoking section 263, which allows revision of orders that are erroneous and prejudicial to the revenue.

The Tribunal examined whether the AO's order was indeed erroneous and prejudicial to the revenue. According to the Supreme Court's precedent in Malabar Industries Ltd. vs. CIT, an order can be considered erroneous if it was passed on incorrect facts, incorrect application of law, violation of natural justice, or without application of mind. Additionally, the order must also be prejudicial to the revenue, meaning it must result in a loss to the revenue due to the AO's error.

3. Proper accounting and taxation of power subsidy and TUF subsidy:
The assessee argued that it followed the mercantile system of accounting and accounted for subsidies in the profit & loss account each year, with receivables shown in the balance sheet. The assessee provided a detailed table showing the yearly claims made and amounts received, demonstrating that the subsidies were properly accounted for in the respective years' profit & loss accounts. The Tribunal found merit in the assessee's argument that the cumulative figures in the balance sheet were not indicative of income for a single year but represented receivables from previous years.

The Tribunal noted that the income from subsidies was duly accounted for in the profit & loss account and there was no escapement of income. The Tribunal also observed that the PCIT erred in considering the cumulative receivables instead of the income shown in the profit & loss account for each year.

Conclusion:
The Tribunal concluded that the AO had conducted the necessary inquiries and the assessment order was neither erroneous nor prejudicial to the revenue. The Tribunal quashed the PCIT's order under section 263, allowing the assessee's appeal. The Tribunal emphasized that the mere disagreement of the PCIT with the AO's view does not justify revision under section 263 unless the AO's view is unsustainable in law.

Order:
The appeal of the assessee is allowed, and the grounds raised by the assessee are accepted. The order passed by the PCIT under section 263 is quashed. The Tribunal pronounced the order in open court on March 9, 2022.