2020 (6) TMI 187 - AT - Income Tax

Revision u/s 263 - AO failed to consider/apply his mind to the information available on record with regard to the subsidy credited to the Capital Reserve A/c - order passed without making necessary verification as was required under Explanation 10 to section 43(1) and without examination of the nature and use of subsidy - HELD THAT - Where the matter relating to treatment of subsidy under RIPS 2010 is arising year after year right from assessment year 2012-13 and in the said year, the matter has been duly examined by the Assessing officer and said subsidy has been treated and accepted as capital subsidy and not brought to tax and following the same position as adopted by his predecessor holding the same charge as that of ACIT, Circle 4, Jaipur, subsequently followed in AY 2013-14 by another predecessor holding the same charge, where the Assessing officer examined the matter for the impugned assessment year A.Y 2014-15 and maintained the past consistent position so accepted by the Revenue, the order so passed by the Assessing officer cannot be held as erroneous in so far as it is prejudicial to the interest of the Revenue. Though the principles of res judicata doesn t apply in the income tax proceedings, however, it has also been laid down by the Courts that unless there are changes in the facts and circumstances of the case, past consistent position so adopted should not be disturbed. In the instant case, we find that under the same investment promotion scheme of 2010 of the Rajasthan Government, the assessee has received the subsidy right from A.Y 2012-13 onwards and similar treatment has been done by the assessee in its financial statements where the amount of subsidy has been credited in the capital reserve account and similar treatment has been done while filing its tax return which subsidy has not been offered to tax. Facts and circumstances of the case are exactly identical as in the past years and where the Assessing officer has followed the consistent position, the order so passed by him cannot be held as erroneous. We note that in the past as well as current year, the Assessing officer has followed the decision in case of Shree Cements Ltd 2017 (8) TMI 1336 - RAJASTHAN HIGH COURT and there is nothing on record that such decision has been overruled by the Hon ble Supreme Court at the relevant point in time. Therefore, in such circumstances, where the Assessing officer has followed the decision of the Hon ble Jurisdictional High Court, the order so passed by him cannot be held as erroneous. The ld Pr. CIT has not pointed out as to how the said decision is not applicable or the same has been wrongly followed by the Assessing officer - Decided in favour of assessee.

Summary

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act by the Pr. Commissioner of Income Tax (Pr. CIT).
2. Application of Explanation 10 to Section 43(1) of the Income Tax Act regarding the subsidy.
3. Justification for setting aside the order of the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act by the Pr. CIT:
The Pr. CIT invoked Section 263, arguing that the AO failed to examine the nature and use of the subsidy received by the assessee under the Rajasthan Investment Promotion Scheme, 2010. The Pr. CIT observed that the subsidy amounting to ?66,86,280 was credited to the Capital Reserve Account instead of the profit/loss account. The Pr. CIT issued a show cause notice to the assessee, asserting that the AO's assessment was erroneous and prejudicial to the interest of the revenue due to lack of necessary verification and application of law. The Pr. CIT's findings were based on the Supreme Court judgment in Malabar Industrial Limited vs. CIT, which held that an incorrect assumption of facts or law constitutes an erroneous order.

2. Application of Explanation 10 to Section 43(1) of the Income Tax Act regarding the subsidy:
The Pr. CIT contended that the subsidy, being a capital receipt, should be considered under Explanation 10 to Section 43(1) of the Act. The AO allegedly did not examine this issue adequately. The assessee argued that the subsidy was meant for promoting investment and employment and was not specific to purchasing depreciable business assets. The assessee relied on the Rajasthan High Court decision in Shree Cement Ltd. vs. Income Tax Officer, which treated such subsidies as capital receipts. The assessee also cited past assessments where similar subsidies were not taxed, maintaining consistency with previous years' treatment.

3. Justification for setting aside the order of the AO:
The Tribunal found that the AO had examined the subsidy issue in previous years and during the current assessment year. The AO had issued specific show-cause notices and considered the assessee's submissions, ultimately treating the subsidy as a capital receipt based on consistent past practice and the Rajasthan High Court's decision. The Tribunal held that the AO's order was not erroneous as it followed a consistent position accepted by the revenue in earlier years. The Tribunal emphasized that the principle of res judicata does not apply to income tax proceedings, but consistent treatment should not be disturbed without changes in facts or circumstances.

Conclusion:
The Tribunal concluded that the Pr. CIT was not justified in exercising jurisdiction under Section 263. The AO's order was based on a consistent position and the jurisdictional High Court's decision, and there was no material change in facts or law. The Tribunal set aside the Pr. CIT's order and sustained the AO's assessment, allowing the assessee's appeal.