2018 (7) TMI 376 - AT - Income Tax

Assessment u/s 153A - issue of subsidy received holding the same as capital receipt - Held that - It is evident that addition in dispute made in regular assessment proceeding has already been deleted by the Tribunal. Assessing Officer has made addition in proceedings under section 153A of the Act for the purpose of computing of the total income only and no incriminating material related to the addition in dispute was found during the course of the search proceedings - set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the addition in dispute. - Decided in favour of assessee.

Issues Involved:

1. Addition of ?28,17,360/- on account of alleged unverified purchases of software items for AY 2006-07.
2. Treatment of sales tax subsidy of ?60,70,404/- as revenue receipt for AY 2007-08.

Issue-wise Detailed Analysis:

1. Addition of ?28,17,360/- on Account of Alleged Unverified Purchases of Software Items for AY 2006-07:

The assessee challenged the addition of ?28,17,360/- made by the Assessing Officer (AO) and upheld by the Commissioner of Income-tax (Appeals) [CIT(A)] for alleged unverified purchases of software items from M/s Exim Trading Company. The AO initially disallowed the software purchase citing lack of evidence, and the CIT(A) upheld this disallowance. The assessee argued that the identity of the supplier was established, and partial purchases from the same supplier were accepted by the AO. The Tribunal, in regular assessment proceedings, had already deleted this addition, noting that the AO accepted purchases amounting to ?14.85 lakhs from M/s Exim Trading Company and only disputed two specific invoices.

In the section 153A proceedings, the AO merely repeated the addition without any new incriminating material. The Tribunal observed that since the addition made in regular assessment proceedings was already deleted, it could not be sustained in the section 153A proceedings. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of ?28,17,360/-.

2. Treatment of Sales Tax Subsidy of ?60,70,404/- as Revenue Receipt for AY 2007-08:

The assessee contested the treatment of sales tax subsidy of ?60,70,404/- received from the Haryana Government as a revenue receipt, which was upheld by the CIT(A). The assessee argued that the subsidy was a capital receipt and should be reduced from the cost of fixed assets. The CIT(A) followed the earlier decision in the regular assessment proceedings, treating the subsidy as revenue in nature.

The Tribunal, in the regular assessment proceedings, had ruled that the sales tax subsidy was a capital receipt, as it was linked to the fixed capital investment and aimed at promoting industrial development. The Tribunal applied the "purpose test" as laid down by the Supreme Court in the case of Ponni Sugars and Chemicals, determining that the subsidy was intended as a capital contribution. The Tribunal noted that the AO had accepted the subsidy as a capital receipt in previous assessment years and should have maintained consistency.

In the section 153A proceedings, the AO repeated the addition without any new incriminating material. The Tribunal held that since the addition was already deleted in regular assessment proceedings, it could not be sustained in the section 153A proceedings. Therefore, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of ?60,70,404/-.

Conclusion:

Both appeals by the assessee were allowed. The Tribunal directed the deletion of the addition of ?28,17,360/- for unverified software purchases and the addition of ?60,70,404/- for the sales tax subsidy treated as revenue receipt. The decisions were pronounced in the open court on 5th July 2018.

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