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2020 (6) TMI 148 - AT - Income TaxCharacterization of income - subsidy received by assessee under the PSI, 2007 Scheme - revenue or capital receipt - HELD THAT - The Tribunal in the case of Innoventive Industries Ltd. Vs. DCIT 2017 (4) TMI 44 - ITAT PUNE after considering the scheme and various decisions on this issue concluded that incentive received by assessee under the PSI, 2007 Scheme in the form of refund of sales tax is capital receipt not liable to tax. Similar view has been taken by the Tribunal in the case of Rohit Exhaust Systems Pvt. Ltd. Vs. ACIT 2015 (3) TMI 1151 - ITAT PUNE The First Appellate Authority has held sales tax subsidy received by assessee as capital receipt by placing reliance on the decisions of Tribunal. Thus, no reason to interfere with the findings of CIT(A) in holding sales tax subsidy received by assessee under PSI, 2007 Scheme as capital receipt - Decided against revenue. Disallowance u/s 14A r.w.r. 8D(2)(iii) - HELD THAT - Disallowance u/s 14A of the Act is restricted to exempt income earned during the relevant period. See Rajmal Lakhichand Jewellers Pvt. Ltd. 2018 (3) TMI 1625 - ITAT PUNE . The ground is thus partly allowed. Value of subsidy from Written Down Value of fixed assets - CIT(A) concluded that the incentive provided under the scheme is directly linked to acquisition of fixed assets - HELD THAT - AO in assessment proceedings has rejected assessee‟s claim of treating subsidy as capital receipt at threshold itself. AO has not examined the issue from the perspective purpose of subsidy and its utilization. CIT(A) in the impugned order has not specified as to how the assessee has reflected the amount of subsidy in its books. Since, facts are not emerging from the orders of authorities below, we deem it appropriate to restore this issue back to the file of Assessing Officer for de novo adjudication after affording reasonable opportunity of hearing to the assessee, in accordance with law. Appeal by assessee are thus, allowed for statistical purpose.
Issues Involved:
1. Disallowance under section 14A of the Income-tax Act, 1961. 2. Disallowance under section 40A(3) of the Income-tax Act, 1961. 3. Addition on account of sales tax benefit received under the Package Scheme of Incentive, 2007 (PSI, 2007 Scheme). Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income-tax Act, 1961: The assessee received exempt income of ?2,000 during the relevant assessment year. The Assessing Officer (AO) made a disallowance of ?2,33,50,690 under section 14A read with Rule 8D(2) of the Income-tax Rules, 1962. The Commissioner of Income Tax (Appeals) [CIT(A)] restricted the disallowance to ?8,88,221 under Rule 8D(2)(iii). The assessee argued that since own funds were more than the funds invested, no disallowance should be made. The Tribunal, referencing the case of Rajmal Lakhichand Jewellers Pvt. Ltd. Vs. DCIT, held that disallowance under section 14A cannot exceed the exempt income earned by the assessee. Consequently, the Tribunal restricted the disallowance to the exempt income of ?2,000 earned during the assessment year. 2. Disallowance under Section 40A(3) of the Income-tax Act, 1961: The AO made a disallowance of ?64,300 under section 40A(3) of the Act. However, this specific disallowance was not contested in the appeals and hence, no detailed analysis or judgment was provided regarding this issue in the Tribunal's order. 3. Addition on Account of Sales Tax Benefit Received under the PSI, 2007 Scheme: The assessee received a sales tax subsidy of ?13,34,90,536 under the PSI, 2007 Scheme from the Maharashtra Sales Tax Department. The AO treated this subsidy as a revenue receipt and added it to the assessee's income. The CIT(A), however, treated the subsidy as a capital receipt and directed the AO to reduce the amount from the cost of acquisition of fixed assets. The Tribunal upheld the CIT(A)'s decision that the sales tax subsidy is a capital receipt, referencing the cases of Rohit Exhaust Systems Pvt. Ltd. Vs. ACIT and Innoventive Industries Ltd. Vs. DCIT. The Tribunal noted that the incentive under the PSI, 2007 Scheme was intended for setting up new industries and expansion, making it a capital receipt not liable to tax. Regarding the reduction of the subsidy from the cost of acquisition of fixed assets, the Tribunal referred to Explanation 10 to section 43(1) of the Act, which mandates that any subsidy received for acquiring an asset should reduce the actual cost of the asset for depreciation purposes. The Tribunal observed that the CIT(A) concluded the subsidy was directly linked to the acquisition of fixed assets. However, the Tribunal found that the AO had not examined the purpose and utilization of the subsidy in detail. Therefore, the Tribunal restored this issue to the AO for a fresh adjudication, directing the AO to consider how the subsidy was reflected in the assessee's books and to provide a reasonable opportunity of hearing to the assessee. Final Judgments: - The appeal by the Revenue was dismissed. - The appeal by the assessee was partly allowed for statistical purposes, specifically regarding the reduction of the subsidy from the cost of acquisition of fixed assets, which was remanded back to the AO for a fresh examination.
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