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TMI Blog2018 (2) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... ings deposits is offered to tax on the basis of mercantile system of accounting. We do not find any infirmity in the finding of the CIT(A) and confirm the same. It is ordered accordingly. - I.T.A. Nos. 474, 484 And 485/Coch/2016 - - - Dated:- 1-2-2018 - SHRI CHANDRA POOJARI, AM AND GEORGE GEORGE K., JM For The Revenue : Shri A. Dhanaraj, Sr. DR For The Assessee : Smt. Sumathy Dandapani, Adv. ORDER Per GEORGE GEORGE K., JUDICIAL MEMBER: These appeals at the instance of the Revenue are directed against the orders of the CIT(A), Trivandrum dated 14/07/2016 concerning assessment year 2012- 13 and the other order of the CIT(A) dated 22/08/2016 concerning assessment years 2003-04 and 2007-08. 2. Since common issues are raised in these appeals, they were heard together and are being disposed of by this consolidated order. We shall first take up for adjudication ITA No. 474/Coch/2016 concerning assessment year 2012-13. ITA No. 474/Coch/2016 (AY 2012-13) 3. The grounds raised by the Revenue read as follows: 1. The learned Commissioner of Income Tax(Appeals), Trivandrum erred in deleting the addition relying on the decision of Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts otherwise than of a capital nature is subject to tax. 3.2 Aggrieved by the assessment order, the assessee preferred an appeal to the first appellate authority. The CIT(A) after elaborately considering the submissions made by the assessee, held that the amounts received from the Central Government and the State Government are not subsidy but only a grant-in-aid to do specific/designated work. It was further held by the CIT(A) that there is no logic for the Assessing Officer to tax as revenue receipt only the unspent portion of the grant-in-aid. It was concluded by the CIT(A) that if at all the Assessing Officer s contention that the amounts received by the assessee from the Central Government and the State Government are not capital receipts, the entire amount ought to have been taxed and not merely the unspent portion of the grant-in-aid. The CIT(A) allowed the appeal of the assessee on this issue. The relevant finding of the CIT(A) reads as follows: 6. Considering all the above, I am of the opinion that what was received by the appellant from the Government is only grant in aid and not subsidy. Once it is established that subsidy has not been received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not submitted to the respective Governments. In the circumstances, the grants received neither forming part of the revenue of the appellant nor credited to the profit and loss account as income. Since these grants are not forming part of the revenue, the unspent balance cannot be treated as revenue receipt and taxed. As ruled by the Hon ble Supreme Court in the case of Sahney Steel and Press Works Ltd vs CIT (228 ITR 253), if the purpose is to help the assessee to set up its business or to complete a project then the money s must be treated as having been received for capital purposes. But if money s are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of trade. 8. It is in this background, respectfully following the decision of the Hon ble Supreme Court mentioned above, it is hereby held that what the appellant had received both from the Central Government and State Government is nothing but grants in aid received for the purpose of setting up of its business and to complete the projects and it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of Agriculture, Government of India, whereby the assessee is to construct state of the art semen station for production of quality frozen semen. On perusal of the letters of the Government of India, whereby the assessee is advanced grants, the agreements entered between assessee and the Government, it is clear that the assessee is acting as a nodal agency for the implementationof the Government sponsored programmes/schemes. The Government authorities are closely monitoring each scheme and its implementation. The unspent amounts are either returned or appropriated to new/revised schemes as per respective government orders. The detailed breakup of the funds received and utilization of various schemes relating to the assessment years under consideration is on record. It can be seen that only on utilizing the released amount that the new funds are released by the Government. 3.4.2 During the assessment year 2012-13, the assessee had unspent balance of ₹ 41,61,30,489/- which includes opening balance of ₹ 20,35,12,103/- brought forward from the immediately preceding year. The unspent balance of grant of various government schemes as on 31/03/2012 are detailed below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,38,00,000.00 23. Introduction of Goat units Kuttanad-GOI 2,68,18,795.00 24. Introducion of Hand Driven Chaff Cut GOK 9,37,500.00 25. Skill Development Self Employ-DAH-GOK 0,00,000.00 26. Special livestock Fisheries GOI 1,73,33,122.00 27. Kuttanad Eco System GOI 19,10,021.00 28. Idukki Package GOI 3,53,21,828.00 TOTAL (1 to 28) 41,61,30,489.99 3.4.3 The detailed position of the schemes from 01/04/2002 till 31/03/2015 is also on record. It can be seen that there is nil balance in certain schemes of heads in which grants are received. This is because those schemes are terminated or wound up or closed during that year. The scheme can be closed only after utilizing the funds allotted for the scheme or on the expiry of the period for which the scheme is sancti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3.4.5 In this context, let us examine some of the judicial pronouncements on this issue. ( i) Hon ble Punjab Haryana High Court in the case of CIT vs. The Punjab State-E-Governance in ITA No. 75 of 2011 (judgment dated 21st April, 2011) was considering the following substantial question of law: i) Whether in the facts and circumstances of the case and in law the ITAT was justified in upholding the decision of Id. CIT(A) and deleting the addition of j ₹ 10,80,40,212/- made by the A.O. on account of unutilized portion of grant received from the State Government? ii) Whether in the facts and circumstances of the case and in law the ITAT was justified in upholding the decision of Id. CIT(A) and deleting the addition of ₹ 65,89,6787- made by the A.O. on account of interest earned on *** FDRs? In considering the above substantial question of law, the Hon ble High Court held that grant in aid received from the government for specific purpose cannot be taxed in the hands of the assessee. It was further held by the Hon ble High Court that the interest received by the assessee on the amount of grant deposited in the bank was also in the nature of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained by the assessee, they show as revenue expenditure, it would not make any difference in law, as the liabililty to tax is depending on the object with which the grant-in-aid is given to the assessee. In that view of the matter, the facts of this case, when the grant-in-aid is given to the assessee for research in the field of telecommunications, which in-turn would benefit the Nation and public at large, the said income is only a 'capital receipt' and not a 'revenue receipt' as contended by the revenue. In that view of the matter. we do not find any merit in this appeal. The substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, appeal is dismissed. ( iv) The ITAT, Chandigarh in the case of The Chief Administrator, Haryana Rural Development Authority vs. The DCIT in ITA No.742/Chd/2012 dated 22/01/2014 held that where the authority had been constituted by the government for the specific purposes of carrying on the activities of the government and where the grants and advances or loans are disbursed by the government to the assessee, the said grants, advances cannot be held to be the income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the CIT(A) is justified in deleting the addition made by the Assessing Officer on account of sundry credits. ( i) Whether the CIT(A) is justified in deleting the addition made by the Assessing Officer, being the unspent balance of grant in aid as on 31/03/2003 received by the assessee from the Government. 4.2 This issue has already been considered by us in ITA No. 474/Coch/2016. For the reason mentioned in paras 3.4 to 3.4.6(supra), we hold that the unspent balance of grant as on 31-03-2003 received by the assessee from the Government cannot be brought to tax as revenue receipt. It is ordered accordingly. ( ii) Whether the CIT(A) is justified in deleting the addition made by the Assessing Officer on account of sundry credits. 4.3 The Assessing Officer had made an addition of ₹ 12,35,813/-, being the sundry creditors. According to the Assessing Officer these were old balance and was outstanding for quite some time. According to the Assessing Officer, these are not legally enforceable by the creditors and hence liable to be taxed. 4.4 Aggrieved by the addition of ₹ 12,35,813/- made by the AO, the assessee, among other issues, filed an appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.5 Aggrieved by the order of the CIT(A), the Revenue had raised this issue in the present appeal. The Ld. DR relied on the grounds raised in the Memorandum of Appeal. The Ld. AR on the other hand relied on the findings/conclusion of the CIT(A). 4.6 We have heard the rival submissions and perused the material on record. The CIT(A) has deleted the addition based on the assurance given by the assessee that reconciliation of the outstanding sundry creditors would be completed and unenforceable credits of sundry creditors would be offered to tax. In the interest of justice and equity, we are of the view that the Assessing Officer should be granted an opportunity to examine the reconciliation statement of sundry creditors filed by the assessee. Therefore, this issue is restored to the files of the Assessing Officer. The Assessing Officer shall expeditiously dispose off the matter, after affording reasonable opportunity of hearing to the assessee. It is ordered accordingly. 4.7 In the result, the appeal of the Revenue in I.T.A. No. 484/Coch/2016 is partly allowed for statistical purposes. ITA No. 485/Coch/2016 (AY 2003-04) 5. The grounds raised read as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer on account of interest accrued on treasury savings deposits. 5.3 The Assessing Officer had made the addition of ₹ 37,85,470/-. The Assessing Officer held that interest had accrued, since the assessee was following the mercantile system of accounting, and hence liable to be taxed. The relevant observation of the Assessing Officer reads as follows: The assessee offered interest income towards deposits and loans as the interest received only (schedule-D). but as per schedule D-II forming part of balance sheet, an amount of ₹ 40,13,677/- has been receivable on Treasury Savings Bank as interest accrued on deposits. As on 31/03/2006, the interest accrued on deposit is ₹ 2,28,207/-. As the assessee follows mercantile system of accounts, the interest accrued in the current year should also be taken as income. 5.4 Aggrieved by the order of the assessment, the assessee preferred an appeal to the first appellate authority. The CIT(A) deleted the addition. The relevant observation of the CIT(A) reads as follows: 11.3 A copy of the interest account filed for verification has been gone through and found that the interest accrued duri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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