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TMI Blog2019 (4) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in deleting the addition. We, therefore, uphold the same. Addition on account of interest on interest-free loans - advance for allotment of shares - HELD THAT:- CIT(A) has categorically recorded that the assessee did charge interest @9% on the advance given to Indo Sprint. Such an interest was shown as receivable in the books of account of the assessee. This finding has not been controverted on behalf of the Revenue. In our considered opinion, no exception can be taken to the view canvassed by the ld. CIT(A) on this issue in deleting the addition to this extent. As regards the second component of disallowance of interest being advance given to Vyanjan Hotels, it is seen that the assessee contended before the CIT(A) that this amount was given for purchase of shares of that company. The assessee furnished details of the shares which it was intending to purchase. CIT(A) restored the issue to the AO and directed him to find out if shares of the company were allotted to it. If it was found that the shares were not allotted to the assessee company after making the payment, then the interest cost would be taken to shares account and added to their cost of acquisition a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anifest that it is attracted only when the object of the Scheme is to subsidize the cost of an asset and not otherwise. Proviso also refers to `such subsidy only. subsidy given by the Central Government or a State Government or any authority etc. for any purpose, except where it is taken into account for determination of the actual cost of the asset under Explanation 10 section 43(1), has become chargeable to tax. Even if a subsidy is given to attract industrial investment or expansion, which is a otherwise a capital receipt under the pre-amendment era, shall be treated as income chargeable to tax, except where it has been taken into account for determining the actual cost of assets in terms of Explanation 10 to section 43(1). This amendment is patently prospective. As the assessment year under consideration is 2011-12 and the amendment is effective from assessment year 2016-17, new hold that section 2(24) (xviii) will have no application. In view of the foregoing discussion, we are satisfied that the subsidy received by the assessee from the Government of Maharashtra is a capital receipt and accordingly not chargeable to tax and at the same time, it is not liable to be reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. Under the given circumstances, we are satisfied that the ld. CIT(A) was justified in deleting the addition. We, therefore, uphold the same. 5. The second ground of the Revenue s appeal is against deletion of addition on account of interest on interest-free loans. Briefly stated, the facts of this ground are that the AO observed during the course of assessment proceedings that the assessee gave advance of ₹ 2,03,05,669 and ₹ 62,65,000/- to Vyanjan Hotels and Indo Sprint respectively, without charging any interest. It was further found that the assessee did pay interest. The AO made disallowance at 12% of the loan amount of ₹ 2.65 crore, which resulted into an addition of ₹ 31,88,480/-. The ld. CIT(A) allowed part relief and sent some part of the addition back to the AO for verification with certain directions. Though the assessee is also in appeal, but the part of the impugned order challenging the re-verification by the AO, has not been assailed before the Tribunal. Thus, to that extent the impugned order has attained finality. 6. We have gone through the relevant material on record and heard both the sides. The ld. CIT(A) has categoric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rebate of ₹ 10/- per litre and Excise duty was repaid on the products supplied. The AO held that the subsidy was revenue in nature. The ld. CIT(A) overturned the assessment order on this point. He, however, held that the amount of subsidy should be reduced from the cost of assets in view of Explanation 10 to section 43(1) of the Act. Both the sides are in appeal on their respective stands. 10. We have heard both the sides and gone through the relevant material on record. It can be seen from the text of the scheme dated 08-07-200, relevant part of which has been reproduced in the assessment order that the main purpose of providing financial assistance under the scheme was : to encourage investment in grain based distilleries in the backward regions of the Maharashtra State . Once the object of the scheme is to encourage setting up of new units, the grant has to be held as a capital receipt. This is a settled legal position which follows from the judgment of the Hon ble Supreme Court in CIT Vs. Ponni Sugar and Chemicals Ltd. (2008) 306 ITR 392 (SC) in which it has been categorically held that if subsidy is given, inter alia, for expansion, then it is a capital receipt i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee . On going through the language of the Explanation 10, it is manifest that it is attracted only when the object of the Scheme is to subsidize the cost of an asset and not otherwise. Proviso also refers to `such subsidy only. If the object of the Scheme is to accelerate the industrial development of the State, then the case is not caught within the mandate of the Explanation 10. Similar view has been taken by various benches of the tribunal in several decisions, including Sasisri Extractions Ltd. VS. ACIT (2010) 122 ITD 428 (Visakhapatnam). The Mumbai bench of the Tribunal in Godrej Agrovet Ltd. VS. ACIT in ITA No. 1629/Mum/09 has also taken a similar view vide its order dated 17.9.2010. Though the Department preferred an appeal against this Tribunal order, but did not challenge the finding returned by the Tribunal on this aspect. Copy of the Tribunal order and the judgment of the Hon ble Bombay High Court have been placed on record. 12. To deal with such a situation, the Finance Act, 2015, w.e.f. 1.4.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the ld. CIT(A) to treat the subsidy received by the assessee in the instant year from Government of Maharashtra under Grain Distillery Scheme, as a capital receipt and the assessee is aggrieved by the decision of the ld.CIT(A) in holding that the amount of the subsidy should be reduced from the cost of assets for the purposes of depreciation. 18. The factual panorama of the issue is that the assessee received subsidy of ₹ 6,30,40,000/- during the year under the same scheme as continuing from the preceding year. The AO treated the amount as of revenue character. The ld. CIT(A) held the amount to be in the nature of capital receipt but also applied Explanation 10 to section 43(1). 19. We have heard both the sides and gone through the relevant material on record. A common submission has been made by both the sides that the facts and circumstances of the instant appeals are mutatis mutandis similar to those of the preceding year. Following the view taken herein above, we uphold the action of the ld. CIT(A) in treating the subsidy as a capital receipt and overturn his view on the question of application of Explanation 10 to section 43(1) of the Act to the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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