2025 (2) TMI 188 - AT - Income Tax

Addition on account of capital subsidy credited to the assessee - as per DR impugned subsidy in fact deserves to be treated as a revenue receipt on accrual basis - HELD THAT - Since the issue herein is very much pending before their lordships for final adjudication it would indeed be pre mature for us to apply accrual principle at this stage for lack of any reasonable certainty in recognition of revenue as per Chainrup Sampatram 1953 (10) TMI 2 - SUPREME COURT Their lordships have categorically held that a revenue receipt could be recognized as an income only in case there arise a reasonable certainty thereof. We reiterate that the Revenue s clear cut case is that the same has indeed been not actually received all along as the dispute is pending before hon ble apex court. Thus issue between the parties is required to be re-adjudicated by AO after it is decided in the hon ble supreme court so as to avoid multiplicity of proceedings. Disallowing after sales expenses etc . - Both the parties reiterate their respective stands against and in support of the impugned after sales expenditure disallowance claim as a provision which stands treated as a mere contingent liability by the learned lower authorities - HELD THAT - We find merit in the assessee s arguments as CIT(A) has simply brushed aside it s impugned provision for after sales expenditure etc. by observing The ground taken by the appellant in its appeal memo settles the issue . Meaning thereby that the assessee s scientific computation herein has nowhere been specifically dealt with or rejected as the learned lower authorities have declined it s provision of the impugned expenditure raised for meeting future anticipated liabilities as per Bharat Earth Movers 2000 (8) TMI 4 - SUPREME COURT Coupled with this the assessee has already succeeded on the very issue before hon ble jurisdiction high court hereinabove. We thus see no substance in the Revenue s vehement contentions supporting the impugned disallowance which stands deleted therefore. Disallowance u/s 14A related to exempt income - HELD THAT - In absence of any other material to the contrary we make it clear that although the assessee has claimed not to have incurred any expenditure; but the same cannot be accepted as at least some indirect expenditure in such an instance could not be altogether ruled out. Faced with this situation we conclude that the learned CIT(A) has fairly estimated the impugned disallowance @ 5% of the assessee s exempt income. Deduction u/s 80G - HELD THAT - We deem it appropriate to accept the assessee s instant claim of section 80G deduction in principle and indeed leave to open for the learned Assessing Officer to frame his consequential computation afresh after verification of the necessary relevant facts as per law. Exemption of dividend income u/s 10(34) - jurisdiction of the appellate authorities under the provisions of the Act in entertaining such a new claim for the first time - HELD THAT - We accept the assessee s instant 5th substantive ground in principle and direct the learned assessing authority to frame its consequential computation as per law subject to a rider that it shall be the tax payer s risk and responsibility only to plead and prove the corresponding claim u/s 10(34) of the Act within three effective opportunities. Deduction of expenditure relatable to the relevant assessment year but debited in the P L a/c of the succeeding assessment year i.e. in the nature of prior period expenditure - HELD THAT - Revenue s stand seeking to reject the assessee s impugned expenditure claim both on accrual as well as that of crystallization (supra) could not be upheld going by the principle of consistency and in view of the fact that this is an instance of revenue s neutral expenditure only as per CIT vs. Modipon Ltd. 2011 (1) TMI 323 - DELHI HIGH COURT The fact also remains that we have already rejected the Revenue s stand based on Goetz India Ltd. 2006 (3) TMI 75 - SUPREME COURT in preceding paras. It further fails to rebut the fact that the very expenditure stands declined in the succeeding assessment year of crystallization as well. We accordingly direct the learned Assessing Officer to accept the assessee s impugned claim after verification of all the necessary facts as per law. Validity of assessment u/s 153A - HELD THAT - Once there is no addition made by the learned Assessing Officer specifically based on the seized material we quote PCIT v. Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 - SUPREME COURT to conclude that such an assessment itself is not sustainable in law. We order accordingly. Learned Assessing Officer s impugned assessment herein stands quashed. Unexplained expenditure - Loose sheets of paper found in a premises not under the control of the appellant relied upon - HELD THAT - We quote hon ble jurisdictional high court decision in CIT v. Girish Choudhry 2007 (5) TMI 176 - DELHI HIGH COURT that such a dumb document could not lead to an addition in assessment proceedings. Addition of excess stock of bagasse - HELD THAT - Assessee herein has already been held entitled for claiming section 80IA deduction. And also that the relevant item i.e. baggage herein is indeed derived from the eligible business activity of producing power and therefore the same is also in the nature of business income only which would fall u/s 80IA deduction.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the subsidy/incentive under the Sugar Industry Promotion Policy, 2004, constitutes a capital receipt or a revenue receipt.

2. The validity of disallowance of after-sales expenses and other provisions as contingent liabilities.

3. The correctness of disallowance under Section 14A related to exempt income.

4. The denial of deduction under Section 80G for donations made.

5. The eligibility for exemption of dividend income under Section 10(34).

6. The treatment of prior period expenses and their allowance in the assessment year.

7. The legitimacy of additions made without specific seized material in search assessments.

8. The treatment of unexplained expenditure based on loose sheets found during search operations.

9. The eligibility for deduction under Section 80IA for income derived from eligible business activities.

ISSUE-WISE DETAILED ANALYSIS

1. Subsidy/Incentive under the Sugar Industry Promotion Policy, 2004

The relevant legal framework includes the Income-tax Act, 1961, and precedents such as Sahney Steel and Press Works Ltd. v. CIT, CIT v. Pony Sugar & Chemicals Ltd., and CIT v. Chaphalkar Brothers. The Court considered whether the subsidy was a capital or revenue receipt, noting the pending Supreme Court adjudication on the matter. It concluded that the issue should be re-adjudicated by the Assessing Officer post the Supreme Court's decision to avoid multiplicity of proceedings.

2. Disallowance of After-Sales Expenses

The Court examined whether the expenses were provisions or actual liabilities. It referenced Bharat Earth Movers v. CIT and Calcutta Company Ltd. v. CIT, supporting the allowance of provisions based on scientific computation. The Court found merit in the assessee's argument and allowed the provision for after-sales expenses.

3. Disallowance under Section 14A

The Court addressed the application of Rule 8D, applicable from A.Y. 2008-09, and found that the CIT(A) fairly estimated the disallowance at 5% of the exempt income, which was upheld.

4. Deduction under Section 80G

The Court accepted the assessee's claim for deduction under Section 80G, subject to verification by the Assessing Officer, as the necessary evidence was provided.

5. Exemption of Dividend Income under Section 10(34)

The Court noted the jurisdiction of appellate authorities to entertain new claims without a revised return and directed the Assessing Officer to compute the exemption, allowing the assessee to prove the claim within three opportunities.

6. Prior Period Expenses

The Court considered the principle of consistency and the revenue-neutral nature of prior period expenses, directing the Assessing Officer to allow the claim after verification.

7. Additions in Search Assessments without Seized Material

The Court quashed assessments where no additions were based on specific seized material, citing PCIT v. Abhisar Buildwell P. Ltd.

8. Unexplained Expenditure Based on Loose Sheets

The Court held that loose sheets without independent material linking them to the assessee could not be used as evidence, referencing CIT v. Girish Choudhry.

9. Deduction under Section 80IA

The Court accepted the deduction claim for income derived from eligible business activities, such as producing power from bagasse, as business income under Section 80IA.

SIGNIFICANT HOLDINGS

The Court established several core principles:

- The treatment of subsidies as capital or revenue receipts depends on pending judicial determinations.

- Provisions based on scientific computation can be allowed as actual liabilities.

- Rule 8D's applicability is limited to A.Y. 2008-09 onwards, and reasonable estimates can be made for prior years.

- Appellate authorities have jurisdiction to entertain new claims without revised returns.

- Prior period expenses should be allowed based on consistency and revenue neutrality.

- Additions in search assessments must be based on specific seized material.

- Loose sheets without corroborating evidence cannot substantiate unexplained expenditure.

- Income derived from eligible business activities qualifies for deductions under Section 80IA.

Final determinations on each issue were made in accordance with these principles, with directions for re-adjudication or verification where necessary.