2023 (10) TMI 1023 - AT - Income Tax

Characterization of the subsidy received - Revenue or capital receipt - HELD THAT - We have thoughtfully considered the aforesaid issue and find that the same is squarely covered by the order passed by the Tribunal in the assessee s own case for A.Y.2010-11 2018 (8) TMI 2132 - ITAT RAIPUR , wherein following its earlier order for the immediately preceding year 2015 (11) TMI 1865 - ITAT RAIPUR , the Tribunal had approved the order of the CIT(Appeals) who had vacated the addition that was made by the A.O by recharacterizing the capital subsidy received by the assessee company as a revenue receipt. No infirmity in the view taken by the CIT(Appeals), who had rightly vacated the addition of Rs. 3,09,58,737/- made by the A.O. by treating the subsidy as a production incentive and not a capital subsidy, we uphold the same. Deduction u/s. 80IA - 7th year of claim of deduction - As observed by the A.O. that the power generation unit of the assessee company had sold electricity to outside parties as well as transferred the electricity to its other divisions for captive consumption - HELD THAT - CIT(Appeals) observed that the issue involved in the present appeal was squarely covered by the order of the Tribunal in the assessee s own case for 2015 (11) TMI 1865 - ITAT RAIPUR . Also, the CIT(Appeals) had drawn support from the judgment of Godavari Power Ispat Ltd. 2013 (10) TMI 5 - CHHATTISGARH HIGH COURT wherein involving identical facts, the Hon ble High Court had held that the market rate of power will be the rate of power available in the open market, namely the price charged by the Board. As the issue involved in the present appeal before us remains the same as was there in the aforementioned judgment/order, therefore, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the disallowance of the assessee s claim for deduction u/s. 80IA. Disallowance u/s. 14A r.w.r 8D - Mandation of recording satisfaction - HELD THAT - We concur with the view taken by the CIT(Appeals) that in the absence of any dissatisfaction having been recorded by the A.O as regards the claim of the assessee that no part of expenditure claimed as deduction was incurred in relation to earning of exempt income, no disallowance u/s. 14A could have been validly made in its hands. In our considered view, the A.O. had not recorded any satisfaction as to why the assessee s claim that no part of the expenditure pertaining to its investment could be attributed to earning of the exempt dividend income by the assessee. Apropos the amendment in 14A vide the Finance Act, 2022, we concur with the view taken by the CIT(Appeals) who, after relying upon the judgment of Era Infrastructure (I) Ltd. 2022 (7) TMI 1093 - DELHI HIGH COURT had observed that the said amendment whereby the requirement of actual earning of exempt income had been dispensed with for computing disallowance u/s. 14A r.w.s. 8D was applicable prospectively w.e.f. 01.04.2022 onwards, and thus, would not have any bearing in the case of the present assessee before us. We, thus, in terms of our aforesaid observations, find no infirmity in the view taken by the CIT(Appeals), who had rightly vacated the disallowance made by the A.O u/s. 14A r.w.r. 8D, and uphold the same.

Summary

Issues Involved:

1. Recharacterization of Sales Tax Subsidy as Revenue Subsidy.
2. Disallowance of Deduction under Section 80IA of the Income-tax Act, 1961.
3. Disallowance under Section 14A read with Rule 8D of the Income-tax Rules, 1961.

Summary:

(A) Recharacterization of Sales Tax Subsidy as Revenue Subsidy:

The Assessing Officer (A.O.) recharacterized the sales tax subsidy received by the assessee as a revenue subsidy instead of a capital subsidy, leading to an addition of Rs. 3,09,58,737/-. The assessee contended that the subsidy was granted under the Chhattisgarh Industrial Policy 2004-09 for infrastructure development, making it a capital receipt. The CIT(Appeals) agreed with the assessee, referencing the Supreme Court's judgment in Sahney Steel & Press Works Ltd. & Ors Vs. CIT and Ponni Sugars & Chemicals Ltd., which established that the purpose of the subsidy determines its nature. The ITAT upheld the CIT(Appeals)'s decision, noting that the issue was already decided in favor of the assessee in previous years. Thus, the addition by the A.O. was vacated.

(B) Disallowance of Deduction under Section 80IA of the Income-tax Act, 1961:

The A.O. restricted the assessee's claim for deduction under Section 80IA by adjusting the deemed sale value of electricity transferred to captive divisions, resulting in a disallowance of Rs. 2,65,16,038/-. The assessee argued that the rate used by the A.O. did not reflect the market value. The CIT(Appeals) found merit in the assessee's argument, supported by the High Court of Chhattisgarh's ruling in CIT Vs. Godavari Power & Ispat Ltd., which established that the market rate should be the price charged by the Board to consumers, not suppliers. The ITAT upheld the CIT(Appeals)'s decision, citing consistency with previous judgments. Thus, the disallowance was vacated.

(C) Disallowance under Section 14A read with Rule 8D of the Income-tax Rules, 1961:

The A.O. made a disallowance of Rs. 35,18,577/- under Section 14A read with Rule 8D, despite the assessee earning only Rs. 1678/- as exempt income. The CIT(Appeals) observed that the A.O. had not recorded any dissatisfaction with the assessee's claim that no expenditure was incurred to earn the exempt income. Citing the Supreme Court's judgment in Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT & Anr., the CIT(Appeals) held that without such dissatisfaction, the A.O. could not invoke Rule 8D. The ITAT concurred with this view and upheld the deletion of the disallowance.

Conclusion:

The appeal filed by the revenue was dismissed on all grounds, with the ITAT upholding the CIT(Appeals)'s decisions on the recharacterization of subsidy, disallowance under Section 80IA, and disallowance under Section 14A read with Rule 8D.