2022 (7) TMI 953 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - HELD THAT - As regards the disallowance under limb (2) of 8D it is an undisputed position that the investments are made in the earlier year 2007-08 where the CIT(A) has rendered a categorical finding that the investments were made out of interest free funds of the assessee company and no disallowance of interest under rule 8D(2)(ii) is required. Thus findings of CIT(A) are not under challenge before us. In the circumstances we hold that no disallowance of interest u/s 14A read with rule 8D(2)(ii) is warranted. Disallowance under rule 8D(2)(iii) for the purpose of computing the average value of investments only the investments which yielded exempt income alone has to be considered - Hon ble Special Bench in the case of Asstt. CIT Vs. Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that while computing the amount of disallowance under sub clause (iii) of sub-rule (2) of Rule 8D of the Rule the value of investment which yielded exempt income alone has to be considered for the purpose of arriving at average value of investment We find merit in the submissions made on behalf of the assessee that the amount of investment which yielded exempt income alone should be taken into consideration for the purpose of arriving at average value of investment as envisaged under sub clause (iii) of sub-rule (2) of Rule 8D of the Rule. Accordingly we restore the matter back to the file of Assessing Officer for the purpose of computing the amount of disallowance in the above mentioned manner. Nature of receipt - Taxability of the subsidy received by the respondent-assessee under the Package Scheme of Incentives 2007 announced by the Government of Maharashtra - Revenue or capital receipt - HELD THAT - As relying on case M/S. CHAPHALKAR BROTHERS PUNE 2017 (12) TMI 816 - SUPREME COURT since the subsidy was granted actually as incentives for encouraging the dispersal of industries to the less developed areas of the State of Maharashtra the subsidy cannot be treated as revenue receipt. As regards to the applicability of provisions of section 28(iv) of the Act this envisages the value of entire benefit whether convertible to money or not which means the benefits have to be in the kind the monetary benefits are not covered by the said provisions of the Act - Decided against revenue.

Summary

Issues Involved:

1. Disallowance under Section 14A of the Income-tax Act, 1961.
2. Taxability of subsidy received under the Industrial Promotion Subsidy Package Scheme, 2007.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income-tax Act, 1961:

The assessee challenged the disallowance made under Section 14A read with Rule 8D of the Income-tax Rules, 1962. The Assessing Officer (AO) had made an addition of Rs. 19,93,315/- under these provisions. The CIT(A) confirmed the disallowance under Rule 8D(2)(ii) but did not challenge the findings that the investments were made out of interest-free funds. Therefore, no disallowance of interest under Rule 8D(2)(ii) was warranted.

Regarding the disallowance under Rule 8D(2)(iii), it was argued that only the investments yielding exempt income should be considered for computing the average value of investments. The Tribunal referred to the decision of the Special Bench of the Income Tax Appellate Tribunal, Delhi, in the case of Asstt. CIT Vs. Vireet Investment (P) Ltd., and other relevant case laws, which supported this view. Consequently, the matter was remanded to the AO for proper computation of disallowance under Rule 8D(2)(iii).

2. Taxability of subsidy received under the Industrial Promotion Subsidy Package Scheme, 2007:

The Revenue appealed against the CIT(A)'s decision to treat the subsidy received from the Government of Maharashtra as a capital receipt. The Tribunal examined the nature of the subsidy under the Package Scheme of Incentives, 2007, which aimed to promote industrial growth in less developed areas of the state. The subsidy was linked to the fixed capital investment and disbursed as a refund of VAT and CST paid on sales.

The Tribunal applied the 'purpose test' established by the Supreme Court in Sahney Steel & Press Works Ltd. v. CIT and CIT v. Ponni Sugars & Chemicals Ltd., which focuses on the purpose of the subsidy rather than its mode of disbursal. The Tribunal concluded that the subsidy aimed at industrial growth and setting up new industrial units, thus qualifying as a capital receipt.

Additionally, the Tribunal noted that the amended provision of Section 2(24)(xviii) of the Finance Act, 2015, which considers certain subsidies as income, was not applicable for the assessment year in question. Therefore, the subsidy did not form part of the assessee's total income.

The Tribunal also addressed the applicability of Section 28(iv) of the Act, which pertains to the value of benefits in kind. Citing multiple case laws, the Tribunal held that monetary benefits are not covered under this provision.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes, and the appeal of the Revenue was dismissed. The disallowance under Section 14A was remanded to the AO for recomputation, and the subsidy received was treated as a capital receipt, not chargeable to tax.