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TMI Blog2022 (9) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... able from total interest income on loans and advances certainly need examination and de novo verification in compliance the revisionary order passed u/s 263 by the Pr. CIT. As in Sir Dorabji Tata Trust Vs. DCIT(E) [ 2020 (12) TMI 1121 - ITAT MUMBAI] we understand that the PCIT was satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the AO, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the CIT, in the exercise of his powers u/s 263, can set aside an order, for lack of proper inquiry or verification, and ask the AO to conduct such inquiries or verifications afresh. Accordingly, we hold that the ld. Pr.CIT is justified facts in law in holding that the assessment order passed by the AO without making enquiries in respect of interest subsidy as erroneous so far as prejudicial to the interest of the Revenue. Thus, the impugned order is sustained. - ITA. No. 127/JP/2022 - - - Dated:- 10-8-2022 - Shri Sandeep Gosain, JM And Dr. M.L. Meena, AM For the Assessee : Shri P.C. Parwal (C.A.) For the Revenue : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his mind to the information available on record with regard to the interest subsidy and grant in aid received from the Government which was to be recognized as income as per section 2(24(xviii) of the I.T. Act, 1961. This in turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material, reflecting non appreciation of facts and an incorrect application of mind to law which is prejudicial to the interest of the revenue. Thus, the order passed u/s 143(3) on 26.12.2019 is erroneous and prejudicial to the interest of the revenue. 6. Further, as mentioned above, the State Government cannot hold more than 25 percent of the share capital of a short-term co-operative credit structure society. After receiving share capital of Rs 268.37 lacs, the total subscribed share capital of the State Government amounted to Rs 603.06 lacs as on 31 March 2017, which represents 24.22 percent of the total subscribed share capital of the Assessee. Because of the embargo provided in the Rajasthan Co-operative Societies Act 1960, the Assessee was refrained from getting the entire capital fund of Rs 1130.37 lacs as share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is proposed to amend section 2(24) to provide that subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or State government shall not form part of income. 9. Accordingly, by virtue of powers conferred on the undersigned under the provisions of section 263 of the Income Tax Act, 1961. I hold that the order under section 143(3) of the IT Act dated 26.12.2019 for AY 2017-18 passed by the assessing Officer is erroneous in so far as it prejudicial to the interest of the revenue as the said order has been passed by the Assessing Officer in a routine and perfunctory manner without examining the issue in hand. The order of the Assessing Officer is therefore liable to revision under the clause (a) (b) of Explanation (2) to section 263 of the Income Tax Act. Hence, the assessment order is set aside as discussed above. 4. Following the Judgment of the Hon ble Apex Court in the case of Malabar Industrial Limited v/s CIT 243 ITR 1, Pr.CIT hold that the assessment order passed by the AO dated 26.12.2019 for the assessment year under consideration as erroneous and so far as prejudicial to the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the CIT can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the AO for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the CIT. In exercise of his powers under s. 263, the CIT may as well direct the AO that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the CIT finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verification were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Appellant's bank as on 31 March 2015 was only 5.83 percent (PB 17-18) as the risk weighted asset as on 31 March 2015 was of Rs 27,952.45 lacs against which the capital fund was Rs 1,631.02 lacs giving capital adequacy ratio of 5.83%. Thus, to increase this ratio at minimum of 9 percent, the Government of Rajasthan in its Budget made provision for providing capital fund to these banks by way of share capital and capital grant. 4. Pursuant to the announcement in the State Budget, Rajasthan State Cooperative Bank Ltd. (hereinafter referred to as the Apex Bank) vide letter dated 20 August 2016 (PB 13) and 1 September 2016 (PB 14) requested the Assistant Registrar Banking, Co-operative Society, Rajasthan for release of funds of Rs 43.89 crores (Rs 6.91 cr. + Rs 36.98 cr.) to the three central cooperative banks so that by 31 March 2017, the minimum capital adequacy ratio of 9% can be achieved. Accordingly, the Appellant's bank vide letter dated 3 October 2016 requested the Apex Bank (PB 15-16) to provide capital of Rs 268.48 lacs and capital grant of Rs 862 lacs which was released by the State Government vide letter dated 7 October 2016. 5. In the books of accounts, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corpus of the institution established by Central or State Government will not be regarded as income. The memorandum explaining this exception as introduced by Finance Bill, 2016 is as under: The Finance Act, 2015 had amended the definition of income under clause (24) of section 2 of the Act so as to provide that the income shall include assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43 of the Income-tax Act. As a result grant or cash assistance or subsidy etc. provided by the Central Government for budgetary support of a trust or any other entity formed specifically for operationalizing certain government schemes will be taxed in the hands of trust or any other entity. Therefore, it is proposed to amend section 2(24) to provide that subsidy or grant by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,643 11,67,37,043 1,32,18,600 14. It is submitted that interest subsidy granted by the Central and the State Government are of following natures: Type 1% and 2% interest subsidy - to meet the cost of owned funds involved in respect of short term production credit (crop loan) provided to the farmers. The 2% subsidy is given by the Central Government through the NABARD (PB 37-38) and the 1% subsidy is given by the State Government as per para 103 jof the Budget 2016- 17 (PB39-43). Type 3% and 4% interest subvention - this is given to those farmers who promptly repay their short term production credit within 1 year of disbursement/ drawl of such loan. The 3% interest subvention is given by the Central Government through the NABARD (PB 37-38) and the 4% interest subvention is given by the State Government as per para 103 of the Budget 2016-17 (PB 39-43). However, the same is routed through the Appellant. 15. It is submitted that the Appellant has already offered 1% and 2% interest subsidy as income which is credited in the profit and loss account and is verifiable from total interest income on loans and advances of Rs 19,59,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id received from the Government which was to be recognized as income as per section 2(24(xviii) of the I.T. Act. The Ld. AR argued that the amount of Rs 1,32,18,600 was treated by the Ld. PCIT as difference between the opening and the closing balance of interest subsidy receivable from the Central Government as mentioned in the balance sheet (PB 23). However, it was not produced before the AO for examination. It is contended that the Appellant has already offered 1% and 2% interest subsidy as income which is credited in the profit and loss account and is verifiable from total interest income on loans and advances of Rs 19,59,01,115 (PB 25-28) reported in the profit and loss account for the year under consideration which includes interest subsidy of Rs 2,60,09,808 as evident from break-up of total interest income (PB 27). We are not convinced and satisfied with the argument of the Ld AR that since the issue of interest subsidy has not been touched upon by the Ld. AO. The interest subsidy being credited in the profit and loss account and is verifiable from total interest income on loans and advances certainly need examination and de novo verification in compliance the revisionary ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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