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2024 (1) TMI 547 - AT - Income TaxNature of receipt - revenue v/s capital receipt - grant-in-aid received from Ministry of Food Processing Industries Government of India - treated as revenue in nature - AO has disallowed the claim of the assessee on the ground that the assessee has not produced supporting bills and vouchers and further only part sum was incurred by the assessee as per ledger account of plant and machinery for the year under consideration - HELD THAT - As it is evident from the reply reproduced by the AO that the assessee has stated that it produced voluminous bills and vouchers in support of the capital expenditure incurred before the AO for necessary verification whereas the AO has considered only ledger account and raised the objection that assessee failed to comply with the instruction made in grant-in-aid as well as failed to furnish evident in support of the claim. This observation of the AO is contrary to the reply itself. As per letter of grant-in-aid Ministry has clearly stated that this amount has been released against the reimbursement of the expenditure already incurred by the assessee as it was verified from the audited accounts. As specifically stated that the grant-in-aid shall be utilized exclusively for the purpose for which it is sanctioned. No Utilization Certificate(UC) is required to be furnished in instant case as per Rule 212(1) of GFR since grant-in-aid are being made as reimbursement of expenditure already incurred on the basis of duly audited accounts. Assessee has also explained before authorities below that the expenditure was already incurred for more than Rs. 4,81,58,385/- out of which a sum of Rs. 4,89,65,171/- was claimed to be eligible for grant-in-aid from Ministry of Food Processing Industries. This expenditure was already incurred in the earlier years and only sum of Rs. 8,06,786/- was incurred during the year under consideration. Thus, the disallowance made by the AO by considering incorrect fact and rather taking incomplete facts is highly unjustified. Thus, when the Ministry of Food Processing Industries has acknowledged the expenditure and released amount of grant-in-aid as reimbursement of the expenditure already incurred then in the absence of any contrary facts or material on record there is no reason for the AO to doubt the expenditure incurred by the assessee. AO has not doubted the claim of the grant-in-aid as received second instalment for F.Y.2012-13 relevant to A.Y.2013-14 based on the same facts of expenditure already incurred by the assessee. There is no dispute that grant-in-aid in question is in the form of reimbursement of the cost of asset and duly taken in the account in accordance with provisions of explanation (10) to clause(1) of section 43 of the Act. The assessee has also reduced the amount of grant-in-aid from the written down value of the fixed asset and therefore, the same would fall in the exclusion sub-clause (a) of section 2(24)(xviii) of the Act. Accordingly in the facts and circumstances of the case grant-in-aid received as reimbursement of the expenditure on modernization/expansion of the plant and machinery/manufacturing facility of the assessee is capital in nature as held by the Hon ble Supreme Court in case of CIT vs. Ponni Sugars Chemicals Ltd. Ors 2008 (9) TMI 14 - SUPREME COURT Accordingly addition made by the AO on this account is deleted. Decided in favour of assesse.
Issues Involved:
1. Addition of Rs. 25,12,991/- by the AO. 2. Treatment of capital grant-in-aid of Rs. 25,00,000/- as revenue receipt. 3. Disallowance u/s. 14A of the Income-Tax Act, 1961. Summary of Judgment: Issue 1: Addition of Rs. 25,12,991/- by the AO The assessee contended that the CIT(A) erred in upholding the AO's addition of Rs. 25,12,991/-, arguing it was unjustified and arbitrary. The tribunal found that the AO's addition was based on the incorrect classification of the grant-in-aid as revenue receipt, contrary to the facts and legal precedents. Issue 2: Treatment of capital grant-in-aid of Rs. 25,00,000/- as revenue receipt The assessee received a grant-in-aid of Rs. 50 lakhs from the Ministry of Food Processing Industries for plant expansion, with Rs. 25 lakhs received during the year under consideration. The AO treated this as revenue receipt due to insufficient expenditure evidence. However, the tribunal noted that the assessee had already incurred substantial expenditure in earlier years, which was verified by the Ministry. The tribunal referred to the Supreme Court's judgment in CIT vs. Ponni Sugars & Chemicals Ltd., emphasizing that the grant was for capital expenditure reimbursement, thus should be treated as capital receipt. The tribunal also highlighted that the AO accepted the second installment as capital receipt in the subsequent year, reinforcing the assessee's position. Issue 3: Disallowance u/s. 14A of the Income-Tax Act, 1961 The assessee chose not to press this ground due to the smallness of the addition, and the tribunal dismissed it accordingly, noting it would not set a precedent for subsequent years. Conclusion: The tribunal partly allowed the appeal, deleting the addition related to the grant-in-aid and dismissing the disallowance under section 14A as not pressed. The order was pronounced in open court on 19.12.2023.
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