2021 (4) TMI 1185 - AT - Income Tax

Revision u/s 263 - subsidy amount received by the assessee attracts the provisions of Explanation 10 to section 43(1) of the Act is not proper - HELD THAT - As subsidy is for cost of plant machinery and technical civil works. Therefore, we are not inclined to accept the submission of the ld. AR that the subsidy was not for the cost of the particular assets and as per the above scheme, there is a restrictive clause that the subsidy shall be kept by the beneficiary in the form of fixed deposits without any interest which has been complied by the assessee. It is clear from the financial statements under Schedule XIV that the deposits with the bank (against subsidy received) ₹ 50 lakhs. The assessee cannot utilize the funds till the locking period as framed by the Govt. of India for enjoying the subsidy to the beneficiary. There is no doubt that as per the section 43(1) Explanation 10, the assessee should reduce the cost of the fixed assets from the subsidy amount, but, in the impugned AY, the assessee has been barred by limitation as provided in the scheme. Considering the above scheme framed by the Govt. of India, under which, the assessee has received the subsidy, ld. Pr. CIT has not justified for this impugned AY revising the assessment framed u/s. 143(3) of the Act by exercising powers u/s. 263 of the Act. Therefore, the finding of the Pr. CIT that the subsidy amount received by the assessee attracts the provisions of Explanation 10 to section 43(1) of the Act is not proper and the same is not applicable to the case of the assessee. Therefore, we set aside the order passed by the Pr. CIT and restore the order of the AO. Appeal of the assessee is allowed.

Issues Involved:
1. Validity of the order under section 263 of the Income Tax Act, 1961.
2. Nature of the subsidy received from the Ministry of Food Processing Industries (MFPI).
3. Applicability of Explanation 10 to Section 43(1) of the Income Tax Act.
4. Examination of the subsidy scheme by the Principal Commissioner of Income Tax (Pr. CIT).
5. Invocation of Section 263 based on audit objection.
6. Applicability of Section 2(24)(xviii) retrospectively.

Issue-wise Detailed Analysis:

1. Validity of the order under section 263 of the Income Tax Act, 1961:
The assessee contended that the order passed under section 263 by the Pr. CIT was bad in law as the twin conditions required for invoking section 263 were not fulfilled. The Pr. CIT had set aside the assessment order dated 07-11-2016 on the grounds that the Assessing Officer (AO) did not bring the subsidy amount to tax, which was considered erroneous and prejudicial to the interests of revenue.

2. Nature of the subsidy received from the Ministry of Food Processing Industries (MFPI):
The assessee argued that the ?25 Lakhs subsidy received from MFPI was a capital receipt meant for Technology Upgradation/Expansion/Modernization/Establishment of Food Processing Industries. The subsidy was reflected under 'Reserves and Surplus' in the Balance Sheet, and not routed through the Profit & Loss account. The assessee cited various judicial precedents to support the claim that the subsidy was of a capital nature and not intended to meet the cost of any specific fixed asset.

3. Applicability of Explanation 10 to Section 43(1) of the Income Tax Act:
The Pr. CIT held that the subsidy should reduce the actual cost of the assets as per Explanation 10 to Section 43(1). However, the assessee contended that the subsidy was not for meeting the cost of any specific asset and should not be deducted from the cost of fixed assets for calculating depreciation. The Tribunal found that the subsidy was indeed meant for plant & machinery and technical civil works, but due to the scheme's restrictive clauses, the assessee could not utilize the funds immediately, thus the provisions of Explanation 10 were not applicable in this case.

4. Examination of the subsidy scheme by the Principal Commissioner of Income Tax (Pr. CIT):
The assessee argued that the Pr. CIT did not fully examine the subsidy scheme dated 20-04-2007 and relied only on the sanction letter dated 18-09-2013. The Tribunal noted that the subsidy scheme's salient features indicated that the subsidy was for the cost of plant & machinery and technical civil works, and the funds were to be kept as fixed deposits without interest, which the assessee had complied with.

5. Invocation of Section 263 based on audit objection:
The assessee contended that the Pr. CIT invoked Section 263 solely based on an audit objection, which was not justified. The Tribunal found that the AO had made proper inquiries and verifications during the assessment proceedings, and the order was neither erroneous nor prejudicial to the interests of revenue.

6. Applicability of Section 2(24)(xviii) retrospectively:
The assessee argued that the Pr. CIT erred in applying Section 2(24)(xviii) retrospectively for AY 2014-15, as the provision was applicable from 01.04.2016. The Tribunal agreed with the assessee and found that the Pr. CIT's application of this provision was not justified for the impugned assessment year.

Conclusion:
The Tribunal concluded that the Pr. CIT's order under section 263 was not justified and set aside the order, restoring the original assessment order passed by the AO. The appeal of the assessee was allowed.

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