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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘A’
Before: SHRI PRAMOD KUMAR, HON’BLE
PER MADHUMITA ROY- JM: The instant appeal is directed against the order dated 20.05.2016 passed by the Commissioner of Income Tax (Appeals)-9, Ahmedabad u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) arising out of the order dated 20.03.2015 passed by the DCIT, Cir-3(1)(1), Ahmedabad for Assessment Year 2009-10.
The Revenue has challenged the correctness of the order in deleting addition of Rs. 96,92,369/- made on account of TUF scheme (Technology Upgradation Fund Scheme) interest subsidy. The assessee company filed its return of income on 25.09.2009 declaring total income at Rs. 22,38,590/- which was processed u/s. 143(3) of the Act and ultimately finalised on 21.12.2010 determining the income at Rs. 1,37,04,620/-. Thereafter it was found that no evidence was produced by the appellant in respect of the deduction at source on certain expenses and the assessee had received an amount of Rs. 7,73,69,161/- as interest subsidy under
ITA No. 1811/Ahd/2016 A.Y. 2009-10 2 TUFFscheme during the year under review. The assessee furnished details only of Rs. 96,92,369/- towards interest capitalisation u/s. 36 of the Act. Hence, upon recording reasons the case was reopened by issuance of notice under section 148 of the Act dated. 31.03.2014. Subsequently the assessee requested the authorities to treat the return of income filed on 31.10.2008 as due compliance of the notice under section 148 of the Act. Ultimately reassessment order was finalised on 20.03.2015 by making addition of Rs. 96,92,369/- in respect of TUFF interest subsidy.
Admittedly there was a clear disclosure of receiving TUFF interest subsidy at Note No. 10 in the notice of accounts, to this effect that interest and finance charges are net of interest subsidy received/receivable under TUFS scheme amounting to Rs. 7,73,69,161/- (Previous yearRs. 4,22,68,951/-) and subvention received/receivable on export packing credit amounting to Rs. 6,58,385/- (Previous year Rs. NIL). It was the case of the assessee that out of the gross interest amount spent, interest pertaining to the period prior to which the asset was first put to use was not allowable by virtue of the proviso of sec. 36(1)(iii) and hence not entitled to claim deduction of interest pertaining to such period to the tune of Rs. 2,64,04,296/- and therefore corresponding interest subsidy cannot be brought to tax. The subsidy is in the nature of reimbursement. If the expenditure incurred is capitalised the subsidy cannot be taxed as income. The appellant, therefore, reduced the amount of interest subsidy pertaining to such period amounting to Rs. 96,92,369/- from the disallowance worked out at Rs. 2,64,04,296/- and made a disallowance of net amount of Rs. 1,67,11,927/-. According to the Ld. AO the assessee was supposed to offer tax on the said interest subsidy of Rs. 96,92,369/- and hence added it to the total income of the assessee. In appeal the same was deleted. Hence, the instant appeal before us.
At the time of hearing of the appealthe Ld. Sr. Counsel appearing for the assessee submitted before us that the subsidy so received by the assessee under the scheme was netted of from the interest expenditure and tax was also paid thereon.
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It was further submitted that out of the gross interest amount spent the interest pertaining to the period prior to the date of the asset is first put to use to the tune of Rs. 2,64,04,296/- was not allowable as revenue expenditure in terms of sec. 36(1)(iii) of the Act. Therefore, it was further argued by the Ld. Sr. Counsel that as the interest expenditure itself was not allowable, the corresponding subsidy cannot be brought to tax. TUFF subsidy is in the nature of reimbursement of the expenditure and if such expenditure incurred is capitalised such amount being the subsidy cannot be taxed as income earned. He further relied upon the judgment passed by the Hon’ble Supreme Court passed in the matter of CIT vs. Shree Balaji Alloys reported in (2017) 80 taxman.com 239 (SC). He, therefore, prayed for upholding the finding of the Ld. CIT(A) in deleting the addition made by the Ld. AO.
On the contrary the Ld. DR relied upon the order passed by the Ld. AO.
We have heard the rival contentions, we have perused the relevant materials available on record. We have also carefully considered the order passed by the Ld. CIT(A). We find while allowing the appeal in favour of the assessee, the Ld. CIT(A) observed as follows:-
“...the appellant had reduced the amount of interest subsidy pertaining to such period amounting to Rs. 96.92 lacs from the disallowance worked out at Rs. 2.64 crores and it itself had made a disallowance of net amount of Rs. 167,11,927/-. I agree with the contention of the appellant that the interest component incurred before putting the asset to use would not be allowable as revenue expenditure. To that extent the appellant would not be entitled to claim deduction of interest pertaining to that period. As the appellant itself has reduced the amount of Rs. 96.92 lacs from the interest pertaining to this period amounting to Rs. 2.64 crores and disallowed the net amount of Rs. 1,67,11,927/-, I am of the considered opinion that the A.O. was not justified in adding Rs. 96,92,369/- to the total income of the appellant. Thus, the A.O. is directed to delete the addition of Rs. 96,92,369/-. This ground of appeal is allowed.” We have gone through the judgment passed by Hon’ble Supreme Court in the case of CIT vs. Shree Balaji Alloys (supra) as cited by the Ld. Sr. Counsel appearing for the assessee wherein it was held that the interest subsidy received by
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the assessee in pursuance of industrial policy of the Government for State would be capital receipt.
In the case in hand it is apparent on record that the appellant itself has reduced the amount of Rs. 96.92 lacs being the interest component incurred before putting the asset to use since the same is not allowable as revenue expenditure and only disallowed net amount of Rs. 1,67,11,927/-. Hence addition on wrong premise to the tune of Rs. 92,96,369/- on the ground that the same was not offered to tax has rightly been dealt with by the Ld. CIT(A) holding it a capital receipt applying the ratio laid down by the Hon’ble Supreme Court as discussed above and appropriately deleted the same. Having no infirmity found in the said order passed by the Ld. CIT(A) we are inclined to confirm the same. Hence, Revenue’s appeal being devoid of merit is dismissed.
In the result, Revenue’s appeal is dismissed.
[Order pronounced in the Court on 09-04-2019.]
Sd/- Sd/- (PRAMOD KUMAR) (MADHUMITA ROY) VICE PRESIDENT JUDICIAL MEMBER
Ahmedabad; Dated 09/04/2019 Tanmay TRUE COPY आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. संबं�धतआयकरआयु�त/ Concerned CIT 4. आयकरआयु�त(अपील) / The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण/ DR, ITAT, 6. गाड�फाईल / Guard file.
आदेशानुसार/ BY ORDER
उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपील�यअ�धकरण, अहमदाबाद / ITAT, Ahmedabad