Income Tax Appellate Tribunal - Hyderabad
Sri Gajanan Agro Mills (India) Private ... vs Asst. Commissioner Of Income Tax, ... on 6 April, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A": HYDERABAD
(THROUGH VIRTUAL CONFERENCE)
BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER
AND
SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
ITA No. 684/H/2019
Assessment Year: 2014-15
Sri Gajanan Agro Mills Vs. Asst. Commissioner of
(India) Pvt. Ltd., Income-tax, Circle - 1,
Nizamabad. Nizamabad
PAN - AAKCS 2093 Q
(Appellant) (Respondent)
Assessee by: Shri H. Srinivasulu
Revenue by: Smt. Nivedita Biswas
Date of hearing: 24/02/2021
Date of pronouncement: 06/04/2021
ORDER
PER L.P. SAHU, A.M.:
This assessee's appeal for AY 2014-15 is directed against the Pr. CIT - 5, Hyderabad's order, dated 08/03/2019 involving proceedings u/s 143(3)/263 of the Income Tax Act, 1961 ; in short "the Act", on the following grounds of appeal:
"1. On the facts and in the circumstances of the case and in contrary to law, the order u/s 263 of the Income :- 2 -: ITA No. 684/Hyd/19 Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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Tax Act, 1961 ('the Act') passed by the Learned Principal Commissioner of Income Tax - 5, Hyderabad is bad in law and set aside the assessment order Dt. 7-11- 2016 despite non-fulfilment of twin conditions as laid out u/s 263.
2. On the facts and in the circumstances of the case and in contrary to law, the Learned Pr.CIT failed to appreciate that the subsidy of Rs.25 Lakhs received from the Ministry of Food Processing Industries [MFPI], Government of India, New Delhi under the scheme for Technology Upgradation/Expansion/Modernization/ Establishment of Food Processing Industries was a capital receipt and there was no error of law in the assessment order of the Learned Assessing Officer.
3. On the facts and in the circumstances of the case and in contrary to law, the Learned Pr.CIT erred in giving a finding that the subsidy received from Ministry of Food Processing Industries, Government of India was intended to reduce the expenditure which the Appellant had incurred for acquiring Building and Plant and Machinery which would result in reduction of actual cost u/s 43(1) read with explanation 10 of the Act.
4. On the facts and in the circumstances of the case and in contrary to law, the Learned Pr.CIT did not examine the subsidy scheme of Ministry of Food Processing Industries, Government of India Dt. 20-4-2007 fully and relied on the sanction letter Dt. 18-9-2013 which does not contain the entire subsidy scheme of the Government.
5. On the facts and in the circumstances of the case and in contrary to law, the Learned Pr.CIT erred in invoking the provisions of section 263 of the Act solely on the basis of an audit objection.
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6. On the facts and in the circumstances of the case and in contrary to law, the Learned Pr.CIT erred in invoking the provisions of section 263 of the Act on a debatable issue where in two views are possible and the AO had adopted one view.
7. On the facts and in the circumstances of the case and in contrary to law, the Learned Pr.CIT erred in applying the provisions of Section 2(24)(xviii) of the Act retrospectively for AY 2014-15 even though the provisions of Section 2(24)(xviii) are applicable from 01.04.2016.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Honourable Members to decide this appeal according to law."
2. The brief facts of the case are that t he assessee, a company, engaged in the business of milling paddy, rice and broken rice filed its return of income for the AY 2014-15 on 19-11-2014 declaring total income at Rs. 61,65,880/ -. The case was selected for scrutiny under CASS and scrutiny proceedings were completed u/s 143(3) of the IT Act on 07/01/2016 assessing the income at Rs. 70,15,880/- by making an addition of Rs. 8,50,000/-.
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3. Thereafter, by virtue of powers vested under section 263 of the Income tax Act, 1961, the Pr. CIT called for the assessment records of the assessee company for the AY 2014-15.
3.1 On observation of the assessment records, the Pr. CIT noticed that the assessee-company received subsidy/ grant-in-aid of Rs. 25 lakhs from the Ministry of Food Processing Industries (MFPI), Govt. of India, New Delhi. He observed that this subsidy amount was not routed through the P&L account of the company for the current year and the total subsidy amount of Rs. 25 1akhs was shown by the assessee-company under Reserves &, Surplus of the Balance Sheet. The MFPI subsidy amount was given by the Govt. of India for setting up/modernization/expansion/technology upgradation with the terms and conditions mentioned as per Annexure-II of the sanctioning letter. He observed that as per clause (2) of the terms and conditions at Annexure - II, a detailed account of expenditure incurred out of the subsidy amount shall be maintained and audited by Chartered Accountant with separate utilization certificates :- 5 -: ITA No. 684/Hyd/19 Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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in the prescribed proforma for (a) building or capital additions to the building etc., (b) equipment, furniture and books (c) revenue/recurring expenditure. 3.2 He further observed that the clause clearly indicates that the Govt. of India has granted subsidy for utilization of the amount for purchase of specified assets or for revenue expenditure. The subsidy amount utilized for revenue expenditure should be offered to tax as revenue income and the subsidy utilized for purchase of asset should be reduced from the WDV of the asset. Hence, the subsidy amount received by the assessee attracts the provisions of Explanation 10 to Section 43(1) of the IT Act. According to Pr. CIT, the Assessing Officer should have brought the subsidy amount to tax in the assessment order passed u/ s 143(3) of the Income Tax Act on 7-11-2016. Since he did not do so, the Pr. CIT issued a show cause notice dated 8/10/2018 u/s 263 of the IT Act to the assessee-company proposing to revise the assessment order dated 7 -11-2016, wherein, inter-alia, he stated that non-disallowance of the :- 6 -: ITA No. 684/Hyd/19 Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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above mentioned claim of exemption of subsidy amount has resulted the assessment order dated 07/11/2016 passed by the AO u/s 143(3) of the Act is erroneous in so far as it is prejudicial to the interests of revenue as the order was passed without making inquiries or verification which should have been done by the AO., therefore requested to show cause as to why the assessment order should not be revised suitably. In response, the assessee submitted as under:
"a) The amount of subsidy received by the assessee-
company is in the nature of Capital receipt and hence is rightly reflected by it in the Balance Sheet under the head 'Reserves and Surplus'. The character of subsidy in the hands of the assessee-company is of capital in nature for the reason that it is sanctioned under the scheme meant for setting up/modernization/technology upgradation of the food processing industries. It was not a subsidy for meeting any cost of any specific fixed asset.
The Hon'blc Supreme Court in the case of CIT vs. P.J. Chemicals Ltd. (1994) 121 CTR (SC) 201 held as "where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, it is not to meet any portion of the 'actual cost' for the purpose of calculation of depreciation. The Supreme Court in the case of CIT vs. Panni Sugars &. Chemicals Ltd (2008) 219 CTR (SC) 105 held that if the object of assistance under the subsidy scheme is to enable the assessee to set up a new unit or :- 7 -: ITA No. 684/Hyd/19 Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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to expand 8.11 existing unit then the receipt of the subsidy would be on capital account. Reliance is also placed on the decision in the case of CIT vs. Reliance Industries Ltd. (2011) 339 ITR 632 (Bom) It is the quality or the nature of the payment that is decisive of the character of the payment and not the method of the payment or its measure The assessee - company relies upon the following decisions:
1. CIT Vs. Godavari Plywoods Ltd (1987) 168 ITR 632 (AP)
2. Sasiri Extractions Ltd vs AC1T (2008) 307 ITR 127 lVizag Tribunal)
3. lnventaa Chemical Ltd vs. AC1T 42 SOT 249 (Hyd)
4. CIT Vs.s Rasoi Ltd (2011) 245 CTR (Cal) 667
5. LG Electronics India p Ltd vs ACIT in ITA No. 2163/Del/2015
b) The amount of subsidy received is not to be deducted from the cost of fixed assets for the purpose of calculating depreciation for the reason that it is not sanctioned or granted for meeting cost of any specific asset either directly or indirectly. The scheme was intended to accelerate industrial development and incentive was given for setting up industry. For the purpose of determining the amount of subsidy, cost of eligible investment was taken as the basis. lt was not specifically intended to subsidize the cost of the asset.
Under such circumstance, the incentive in the form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost. Thus, it falls outside the keen of Explanation 10 to section 43(1).
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c) During the course of assessment proceedings, the Assessing Officer had called for information and explanation relating to the subsidy received. Details thereof and explanations were furnished by the assessee and after proper inquiry and verification, the Assessing officer had completed the assessment. Hence, the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue.
d) The stand adopted by the assessee-company is on a settled legal position and assessment is made for proper inquiry. Hence, it is requested that the proceedings under reference may kindly be dropped." 3.3 The Pr. CIT rejected the submissions of the assessee and after discussing the issue at length, he set aside the assessment order and directed the AO to redo the assessment after examining the issues as mentioned in his order.
4. Aggrieved by the order of Pr. CIT(A) the assessee is in appeal before the Tribunal.
5. Before us, the ld. AR of the assessee submitted that the Learned Pr.CIT failed to appreciate that the subsidy of Rs.25 Lakhs received from the Ministry of Food Processing Industries [MFPI], Government of India, New Delhi under the scheme for Technology Upgradation/Expansion/ :- 9 -: ITA No. 684/Hyd/19 Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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Modernization/Establishment of Food Processing Industries was a capital receipt and there was no error of law in the assessment order of the Learned Assessing Officer. He submitted that Pr.CIT erred in giving a finding that the subsidy received from Ministry of Food Processing Industries, Government of India was intended to reduce the expenditure which the Assessee had incurred for acquiring Building and Plant and Machinery which would result in reduction of actual cost u/s 43(1) read with explanation 10 of the Act. He contended that the Learned Pr.CIT did not examine the subsidy scheme of Ministry of Food Processing Industries, Government of India Dt. 20-4-2007 fully and relied on the sanction letter Dt. 18-9-2013 which does not contain the entire subsidy scheme of the Government. He further contended that the Learned Pr.CIT erred in applying the provisions of Section 2(24)(xviii) of the Act retrospectively for AY 2014-15 even though the provisions of Section 2(24)(xviii) are applicable from 01.04.2016.
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5.1 The ld. AR submitted that the amount of subsidy received by the assessee-company is in the nature of Capital receipt and hence is rightly reflected by it in the Balance Sheet under the head 'Reserves and Surplus'. The character of subsidy in the hands of the assessee -company is of capital in nature for the reason that it is sanctioned under the scheme meant for setting up/modernization /technology upgradation of the food processing industries. It was not a subsidy for meeting any cost of any specific fixed asset. He submitted that the amount of subsidy received is not to be deducted from the cost of fixed assets for the purpose of calculating depreciation for the reason that it is not sanctioned or granted for meeting cost of any specific asset either directly or indirectly. The schem e was intended to accelerate industrial development and incentive was given for setting up industry. For the purpose of determining the amount of subsidy, cost of eligible investment was taken as the basis. lt was not specifically intended to subsidize the cost of the asset. Under such circumstance, the incentive in the form of subsidy cannot :- 11 -: ITA No. 684/Hyd/19 Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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be considered as a payment directly or indirectly to meet any portion of the actual cost. Thus, it falls outside the keen of Explanation 10 to section 43(1).
5.2 He submitted that during the course of assessment proceedings, the Assessing Officer had called for information and explanation relating to the subsidy received. Details thereof and explanations were furnished by the assessee and after proper inquiry and verif ication, the Assessing officer had completed the assessment. Hence, the order of the Assessing Officer is neither erroneous nor prejudicial to the interests of Revenue and the same may be restored.
6. The ld. DR, on the other hand relied on the order of Pr. CIT and submitted that the grant is towards specific use and the beneficiary of such grant-in-aid shall maintain audited statements of accounts together with separate utilization Certificate for building/equipments/furniture/ revenue expenditure, whereas, the certificate given by the CA in the assessee's case noted that grant from MFPI is being used towards acquisition of assets. Therefore, the Pr.
:- 12 -: ITA No. 684/Hyd/19 Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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CIT rightly set aside the order of AO and directed to redo the same.
7. We have considered the rival submissions and perused the material on record as well as the orders of authorities below. The Ministry of Food processing Industries objective is that the Scheme for Technology upgradation/ expansion/ modernization/establishment being implemented is aimed at upgradation of processing capabilities. It has been decided to decentralize the implementation of the scheme for Technology Upgradation Establishment/ Modernization of Food Processing industries in the 11 th Plan period i.e. w.e.f. 1 st April 2007 through Banks/financial institutions to provide a thrust and wider coverage for food processing industries in the country and simultaneously decentralize the procedures for appraisal, grant of assistance and monitoring. 7.1 The salient features of the subsidy scheme of the Ministry of Food Processing Industries are as under:
" 1. The food processing Industry in India occupies a unique position in the Indian Economy in terms of its potential for employment generation, increasin g the :- 13 -: ITA No. 684/Hyd/19 Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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farmers income and export growth. The scheme for Technology upgradation/ expansion/ modernization/ establishment being implemented by the Ministry Of Food Processing Industries [MFPl] is aimed at upgrading of processing capabilities.
2. The scheme shall be operational w.e.f. 1st April, 2007.
3. Implementing agencies shall be Banks/Financial institutions.
4. The scheme will provide 25% of the cost of plant & machinery and technical civil works subject to a maximum of Rs. 50,00,000/- in general areas and 33% up to Rs.75,00,000/- in difficult areas like: Jammu and Kashmir, Himachal, Uttarakhand etc.
5. A) Subsidy shall be released in two equal installments. The first installment would be released after the firm has utilized 50% of the term loan an d 50% of the promoter's contribution.
B) The second installment of the subsidy would be released after 100% of term loan and promoter's contribution subject to production of utilization certificate by the unit in prescribed form.
6. The subsidy shall be kept as fixed deposit with the bank in the name of the borrower for the duration of the full term loan and it will not earn any interest. The fixed deposits created for the 1 st and 2 nd installments of subsidy should be for a minimum period of Three years from the date of commercial production.
7. The fixed deposits of installments of subsidy shall be adjusted against the last installments of full term loan plus a proper implementation/utilization by loanee as per schematic requirements.
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8. Subsidy granted dates to the appellant First Installment 24th July, 2008 - AY - 2009-10 - Rs. 25,00,000/-
Second Installment 18th September, 2013-AY- 2014-15 - Rs. 25,00,000/-"
On going through the salient features of the subsidy scheme as above, at point No. 4, it is clear that the 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) Rs. 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 :- 15 -: ITA No. 684/Hyd/19 Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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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 26 3 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. Accordingly, the grounds raised by the assessee are allowed.
8. In the result, appeal of the assessee is allowed.
Pronounced in the open court on 6 th April, 2021.
Sd/- Sd/-
(S.S. GODARA) (L.P. SAHU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 6 th April, 2021.
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Sri Gaj anan Ag ro Mills (India) Pvt. Ltd ., Nizamabad .
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kv copy to :
1 Sri Gajanan Agro Mills (India) Pvt. Ltd., D. No. 6-26/285/1, Gajanan Lane, Gurbabadi Road, Near Raiwaly Gate, Nizamabad.
2 ACIT, Circle - 1, Nizamabad 3 Pr. CIT - 5, Hyderabad. 4 ITAT, DR, Hyderabad. 5 Guard File.