DY. COMMISSIONER OF INCOME-TAX, CIRCLE-5, PUNE vs. SHRINIWAS ENGINEERING AUTO COMPONENTS PVT. LTD., PUNE

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 from the Maharashtra Government under the Package Scheme of Incentives (2007), by treating it to be of revenue nature. The CIT(Appeals) has erred in holding that the subsidy of Rs. 43,20,39,280/-is explicitly falling within the definition of income (i.e. revenue receipts) and therefore the action of the Assessing Officer in charging the same to tax is up held. The CIT(Appeals) has failed to appreciate that, since the subsidy of Rs.43,20,39,280/- has been 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, therefore by application of the explanation 10 to clause 1 of s. 43 of the Act, the amount of subsidy will not be treated as income u/s 2(24)(xviii) of the Act.

3. The appellant craves leave to add to or amend/modify or delete any or all of the above grounds of appeal.”

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 Exemption of Electricity Duty for a period of 7 years and Industrial Promotion Subsidy and the same has been granted to encourage the business by giving various exemptions which inturn will yield more profits to the assessee and subsidy is not related to any fixed asset therefore the subsidy granted is taxable u/s.2(24)(xviii) of the Act. Ld. AO has referred to plethora of decisions in the assessment order. It has been contended by the assessee that post amendment in section 2(24)(xviii) inserted by Finance Act, 2015 effective from 01.04.2016 assessee in accordance with the provisions of Explanation 10 to clause (1) of section 43 of the Act has already been taken into account the amount of subsidy for determination of the actual cost of assets for computing the depreciation in the computation of income filed along with return of income of income for the assessment year under consideration. However, ld. AO was not satisfied with these arguments and submissions and was of the firm view that subsidy in question is not for acquiring any fixed assets and it has been granted to the assessee for encouraging the business and generation of profits and is taxable for the year under consideration. Further, ld. AO has made other disallowances including disallowance made u/s.36(1)(va) of the Act for delay in deposit of Employees contribution to Provident Fund/Employees State Insurance (PF/ESI) of Rs.61,55,461/- along with the addition for subsidy received under PSI, 2007 of Rs.43,20,39,380/-. Income assessed at ₹36,62,36,830/-.

“1. The assessee has received the following subsidy from the Government of Maharashtra under the Package Scheme of Incentives (PSI) (2007) (Mega Project).

Sr. A.Y. Amount of Amount of Paper Book No. subsidy subsidy Page received reduced from the actual cost of assets in the depreciation chart for Income Tax Purposes 1 2016-17 43.20 Cr. 44.57 Cr. 5,9,38 & 39 2 2017-18 59.64 Cr. 61.56 Cr. 5,9,55 & 56 3 2018-19 37.09 Cr. 37.09 Cr. 44, 46, 132, 152 & 159 4 2019-20 32.24 Cr. 33.24 Cr. 42,44,147,64 & 170 5 2020-21 43.41 Cr. 43.41 Cr. 6,10,72 & 73

The argument of the Ld. Departmental Representative is that even though the assessee in terms of the explanation (10) to Section 43 of the Income Tax Act has taken into account the said subsidy for determination of the actual cost of the assets for claiming depreciation as per Income Tax, the said subsidy is nevertheless to be treated as income under clause (xviii) of Section 2(24) of the Income Tax Act as the subsidy is not relatable to any asset.

3. At the outset it is respectfully submitted that, if the argument of the Ld. Departmental Representative is to be accepted as correct and the subsidy is to be treated as income, the depreciation forgone/given up by the assessee by reducing the subsidy from the cost of the assets for Income Tax purposes, may be allowed to the assessee as alternate relief. Otherwise it will result in double taxation. In this regard reliance is placed on the judgement of the Hon'ble Supreme Court in the case of Mahalakshmi Textile Mills Ltd.

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 [1967] 66 ITR 710 (SC) and the judgement of Bombay High Court in the case of Ciba of India Ltd. (1989) 47 Taxman 366 (Bombay).

3.1 It is further respectfully submit that the argument of the Ld. Departmental Representative is incorrect for the following reasons.

Clause (XVIII) of section 2(24) was introduced in the Income Tax Act by Finance Act 2015 applicable from Assessment Year 2016-17, to include the Government Grants/Subsidy in the definition of income.

The Central Board of Direct Taxes (CBDT) has issued the explanatory notes to the Finance Act 2015, vide Circular No. 19/2015, F.No.142/14/2015-TPL dated 27-11-2015. Para 5.1 of the circular contains the explanatory note on clause (XVIII) to section 2(24) of the Income Tax Act. The said Para 5.1 is reproduced below.

"5.1 Alignment of provisions relating to taxation of Government Grants with the provisions of Income Computation and Disclosure Standards (ICDS).

5.1 Sub-section (2) of section 145 of the Income-tax Act provides that the Central Government may notify Income Computation and Disclosure Standards (ICDS) for any class of assessees or for any class of income. The Central Board of Direct Taxes (CBDT) notified ICDS-I to ICDS-X vide Notification No.S.O. 892(E) dated 31st March, 2015 after wide public consultations.

The ICDS-VII relating to Government grants provides that all Government grants except relating to depreciable asset shall be recognised as income in accordance with the provisions of the said ICDS. The existing provisions of Explanation 10 to clause (2) of section 43 of the Income-tax Act already contained the guidance for treatment of Government grants relating to acquisition of an asset.

However, there was no specific guidance available under the provisions of the Income-tax Act for treatment of other Government grants.

During the public consultations for ICDS, the stakeholders suggested that in order to avoid any future controversy in this matter, there should be specific provision in the Income-tax Act for treating these Government grants as income. The Accounting Standard Committee, which drafted the ICDS, has also examined the suggestions/comments received during public consultations and suggested that the issue of legislative amendment for bringing certainty in this matter may be examined.

In order to avoid any future litigation and controversy in this matter, the definition of income under clause (24) of section 2 of the Income- tax Act has been amended 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

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 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 (2) of section 43 of the Income-tax Act."

A perusal of the above para clarifies that before introducing the said clause (XVIII) to Section 2(24) of the Income Tax Act, the existing provisions of explanation (10) to section 43(1) of the Income Tax Act contained the guidance for treatment of the Government Grants/Subsidy relating to depreciation assets. Section 43(1) defines "actual cost of the assets". The said explanation (10) mandates that if the cost of assets acquired by the assessee has been met by some Government Grants/Subsidy then the cost of the assets for the purposes of depreciation shall be reduced by the amount of the Government Grants/Subsidy.

The simple meaning of the explanation (10) is that the assessee will not be allowed depreciation to the extent of the Government Grants/Subsidy received by the assessee if the Government Grants/Subsidy is relatable to acquisition of depreciable asset.

The Central Board of Direct Taxes (CBDT) has notified ICDS-VII regarding income computation and disclosures relating to Government Grants. The said ICDS-VII provides that all Government Grants except relating to depreciable assets shall be recognized as income. Para 5.1 of the explanatory notes has explained that the existing provisions of explanation (10) of Section 43(1) of the Income Tax Act, already contains the guidance for treatment of the Government Grants relating to acquisition of assets. However there was no specific guidance available in the Income Tax Act for treatment of other Government Grants (grants not relating to acquisition of assets.

In other words the Central Board of Direct Taxes (CBDT) has explained that there was clear guidance in explanation (10) to Section 43(1) that the Government Grants/Subsidy which is relatable to a depreciable assets will be reduced from the cost of the assets for the purposes of computing depreciation in respect of that asset under the Income Tax Act. However there was no guidance in the Act about the treatment of the Government Grants/Subsidy that was not relatable to acquisition of asset. The amendment to Section 2(24) i.e. the introduction of Clause (xviii) to Section 2(24) of the Income Tax Act has been made to mandate that the Government Grants/Subsidy not relatable to acquisition of an asset shall be included in the definition of income, if the assessee has not reduced the amount of the Government Grants/Subsidy from the cost of the assets, for claiming depreciation for the Income Tax Act purposes.

In other words from Assessment Year 2016-17 onwards the legislature has given an option to the assessee to either reduce the amount of Government Grant/Subsidy, which is although not relatable to acquisition of assets, from the cost of assets for claiming

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 depreciation under the Income Tax Act, as per the method provided in explanation (10) to section 43(1) of the Income Tax Act for Government Grants/Subsidy relatable to acquisition of assets or in the alternative treat the said Government Grant/Subsidy as income. It is further respectfully submitted that the above option is not available to the assessee in respect of Government Grant/Subsidy which are relatable to acquisition of assets, which has to be compulsorily reduced from the cost of the assets for claiming depreciation under the Income Tax Act.

Para 5.1 of the explanatory notes has explained the treatment to be given to the Government Grants/Subsidy not relating to acquisition of an assets view of the new clause (xviii) of Section 2(24), in contradiction to the treatment of Government Grants/Subsidy which is relatable to acquisition of depreciable assets.

Para 5.1 have referred to Government Grants relating to depreciable assets in contradiction to the Government Grants not relating to depreciable assets. Therefore the amendment is to be understood as concerning the subsidy not relating to any depreciable assets. Thus the newly introduced Clause (xviii) of Section 2(24) simply provides that the Government Grants even though not relating to depreciable assets, shall not be treated as income, if the subsidy has been reduced from the cost of assets for claiming depreciation under the Income Tax Act. Thus the new clause (xviii) in order to exclude the said subsidy from the definition of income does not require the assessee to relate the subsidy to any depreciable asset. It just requires the assessee to reduce the subsidy from the cost of depreciable assets to claim depreciation on the same for Income Tax purpose.

In other words, from Assessment Year 2016-17 the subsidy not relating to acquisition of assets which has been reduced from the cost of the assets for claiming depreciation as per the Income Tax Act, shall not be treated as income. If it is not reduced from the cost of acquisition of assets it will be treated as income under clause (xviii) of section 2(24). However the subsidy which is relatable to acquisition of depreciable asset has to be compulsorily reduced from the cost of asset for claiming depreciation.

4. In the present case as evidenced from the enclosed depreciation charts for Income Tax purpose, the assessee has duly reduced the amount of the subsidy for the all the five Assessment Years from the cost of assets and has not claimed depreciation to the extent of the amount of subsidy.

Legislature has given the option to the assessee to either not to claim depreciation on the amount of subsidy or offer the subsidy as income. The assessee in the present case has chosen not to claim depreciation on the subsidy from Assessment Year 2016-17 onward i.e. the Assessment Year from which the amendment was introduced, and not offer/treat the subsidy as income.”

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 “Law has changed from A.Y. 2016-17 on the subject. From Assessment year 2016-17 government subsidy will be treated as income u/s 2 (24) (xviii) only if it is not accounted for, as required by explanation 10 to section 43 of the Act, in determination of the cost of the assets for claiming depreciation.

(a) The assessee has duly accounted for the subsidy from the cost of the assets, for determination of the actual cost of the assets for claiming depreciation as per Income Tax. (Paper Book page No. 5, 9 and 79 para 4.2) Accordingly clause (xviii) of section 2 (24) does not apply. Kindly refer to synopsis of the submissions and arguments (Annexure A).

(b) It was argued by the Ld. DR that since the government subsidy received in this case, is not relatable to any assets the explanation 10 to section 43 (1) of the Act does not apply in this case, and that the fact that the assessee has reduced the amount of subsidy from the cost of assets for claiming deprecation will not absolve the assessee from the rigour of clause (xviii) added to the definition of income u/s 2 (24) of the Act from A.Y. 2016-17.

As submitted in the synopsis of submissions enclosed at (annexure A), the amendment to section 2 (24) of the Act by adding the sub clause (xviii) itself has been brought to deal with such subsidy that are not relatable to any assets.

In this regard it is submitted that from A.Y. 2016-17 onward to decide as to whether the amount of government subsidy will be treated as income by application of the said clause (xviii) of section 2 (24) or not, the applicability of explanation 10 to section 43 (1) is not relevant. In order to exclude the government subsidy from the definition of income, u/s 2 (24) (xviii) the assessee is not required to show that explanation 10 to section 43 (1) is applicable. In other words there is no requirement that the subsidy in question should be relatable to assets.

What is required is that the assessee should reduce y the amount of subsidy from the cost of assets for the purposes of claiming depreciation. relevance of the explanation 10 to section 43(1) of the Income Tax Act is limited to the extent that the amount of subsidy is to be reduced as per the method provided in the explanation.

It is emphasised that the expression "In accordance with" used in sub clause (a) of clause (xviii) to section 2 (24) does not mean that in order to exclude the government subsidy from the definition of income the assessee has to established that the explanation 10 to section 43 (1) is squarely applicable to the subsidy i.e. the subsidy is relatable to assets.

(c) While interpreting the expression "in accordance with" the Hon'ble Supreme Court in para 96 of its judgement in the case of State of Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 Haryana Vs State of Punjab JT 2004 (5) SC 72, 2004 (6) Scale 75, (2004) 12 SCC 673 have held as fallows. The phrase used is "in accordance with" and not "under". "In accordance with" in the context implies similarity or harmony but not identity. (d) While deleting the adjustment made u/s 143 (1) (a) of the Act, in assessee's own case for A.Y. 2018-19, 2019-20 and 2020-21, the CIT (A) has held that where the assessee has accounted for the government subsidy from the cost of the asset for determination of the actual cost of asset for claiming depreciation, subsidy is not to be treated as income u/s 2 (24) (xviii) of the Act.”

“8. We have heard the rival contentions and perused the record placed before us. We observe that the assessee has received Subsidy from the Government of Maharashtra under the Package Scheme of Incentives, 2007 at ₹37,84,89,268. We also note that assessee has credited the said Subsidy in its profit and loss account but while computing the income to file income-tax return the same has been reduced it from the Net Profit claiming it to be Capital Receipt not liable to tax. As submitted by ld. Counsel for the assessee that this issue has come up before this Tribunal in assessee’s own case on number of occasions, we take note of the decision of this Tribunal in dated 27.04.2022 for A.Y. 2014-15 (supra), wherein also subsidy of ₹36,08,69,697 was received and claimed as a Capital Receipt. For A.Y. 2014-15 Revenue was in appeal raising a ground that since there is direct link to the investment in Fixed Asset by the eligible unit therefore as per Explanation 10 to section 43(1) of the Act since the cost of asset has been met directly or indirectly by the Central Govt, State Govt. or any authority then so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset. We further find that this Tribunal has dismissed the Revenue’s appeal observing as follows :

“10. We heard the rival submissions and perused the material on record. We have carefully gone through the Package Scheme of Incentives, 2007, the preamble of the scheme, extracted above, clearly indicates the intention behind grant of subsidy was to encourage the setting up the new industries in under developed region in the State of Maharashtra. Indisputably, it is not the case of the Assessing Officer that the subsidy is revenue in nature, as the Assessing Officer himself had invoked the provisions of Explanation 10 to section 43(1) of the Act. Therefore, the issue that arises for our consideration in the present appeal is whether the amount of subsidy received from the Government of Maharashtra shall go to reduce the actual costs of assets u/s 43(1) for the Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 purpose of allowing the depreciation u/s 32 of Act. No doubt, the subsidy was granted in terms of the certain percentage of fixed assets to be disbursed in the form of refund of octroi, electricity duty exemption, entry tax refund, VAT etc. over a period of 8 years. Then the next question, that arises for consideration in such circumstances is that, can be it said that subsidy is granted to meet the cost of the actual fixed assets, merely because the amount of subsidy is calculated in term of certain percentage of investment in fixed assets. The Hon’ble Supreme Court had an occasion to consider the identical issue in the case of CIT vs. P.J. Chemicals Ltd., 210 ITR 830 and after review of the case law on the point, the Hon’ble Supreme Court held as under :-

“Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost. The expression 'actual cost in section 43(1) of the Income-tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. The amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation etc.”

11. The Hon’ble Gujarat High Court in the case of CIT vs. Swastik Sanitary Works Ltd., 286 ITR 544 (Guj.) following the principle laid down by the Hon’ble Supreme Court in the case of P.J. Chemicals Ltd. (supra) held that the subsidy is intended as an incentive to encourage entrepreneurs to move and establish industries,, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the “actual cost” as defined under the provisions of section 43(1) of the Act. Similarly, the Hon’ble Bombay High Court in the case of PCIT vs. Welspun Steel Ltd., 264 Taxman 252 followed the ratio of the decision of the Hon’ble Gujarat High Court (supra).

12. As regards to the applicability of Proviso to Explanation 10 to section 43(1) which was inserted in the Statute w.e.f. 1.4.1999 by the Finance Bill (2) of 1998, the Proviso take cares of situation where such subsidy, grant or reimbursement is such nature that subsidy, grant or reimbursement cannot be directly relatable to the assets acquired by an assessee. In such a situation, the Proviso envisages that so much of amount which bears to the total

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 subsidy, reimbursement or grant, the proportion as such assets bears to all the assets in respect of or with reference to which subsidy or grant is so received shall be deducted in the actual cost of the asset of the assessee. Thus, the proviso envisages adjustment of subsidy in the assets of the assessee. In case the subsidy grant is not directly relatable to particular asset. Since in the preceding paras we held that the provisions of Explanation 10 to section 43(1) have no application to the facts of the present case, the question of applicability of Proviso does not arise. In the light of the above, we hold that the amount of subsidy is not to be deducted from the actual cost u/s 43(1) for the purpose of calculation of depreciation and the provisions to Explanation 10 to section 43(1) have no application to the facts of the present case. We are forfeited in taking this view by the decision of the Hon’ble Bombay High Court in the case of Welspun Steel Ltd. cited supra. This decision being that of Jurisdictional High Court is binding on us. Therefore, it is not necessary for us to deal with the decision of the Hon’ble Delhi High Court in the case of Steel Authority of India Ltd. (supra) and the Hon’ble Karnataka High Court in the case of Shree Renuka Sugars Ltd. (supra) relied upon by the ld. CIT-DR. Therefore, we do not find any merit in the ground of appeal no.2 and 3 filed by the Revenue. Accordingly, ground of appeal no.2 and 3 stands dismissed.”

9. From perusal of the above finding of this Tribunal, we find that the same is squarely applicable on the facts of the instant case and this Tribunal has held that since the provisions of Explanation 10 to section 43(1) have no application to the case of the assessee, the question of applicability of proviso to Explanation 10 to section 43(1) of the Act does not arise. In other words, the Tribunal has held that since the alleged subsidy received by the assessee is not relatable to any Fixed Asset, therefore, Explanation 10 to section 43(1) will not apply. Further, the Tribunal taking consistent view has held that the subsidy received by the assessee from the Government of Maharashtra under the Package Scheme of Incentives, 2007 is a Capital Receipt. Finding of ld.CIT(A) is reversed. Grounds of appeal raised by the assessee are allowed.

10. We further note that an amendment has been brought in from 01.04.2016 inserting section 2(24)(xviii) of the Act which reads as under :

“2(24)xviii) : 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,—

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 (a) 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; or (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be;

11. In the above provision, reference is made to Explanation 10 section 43(1) of the Act which reads as under :

Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets 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.

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 2014-15 and has been followed by this Tribunal for A.Y. 2015- 16 and the same already stands extracted (supra). For the sake of repetition, we again reference to para 12 of this Tribunal’s decision in dated 27.04.2022 for A.Y. 2014-15 :

12. As regards to the applicability of Proviso to Explanation 10 to section 43(1) which was inserted in the Statute w.e.f. 1.4.1999 by the Finance Bill (2) of 1998, the Proviso take cares of situation where such subsidy, grant or reimbursement is such nature that subsidy, grant or reimbursement cannot be directly relatable to the assets acquired by an assessee. In such a situation, the Proviso envisages that so much of amount which bears to the total subsidy, reimbursement or grant, the proportion as such assets bears to all the assets in respect of or with reference to which subsidy or grant is so received shall be deducted in the actual cost of the asset of the assessee. Thus, the proviso envisages adjustment of subsidy in the assets of the assessee. In case the subsidy grant is not directly relatable to particular asset. Since in the preceding paras we held that the provisions of Explanation 10 to section 43(1) have no application to the facts of the present case, the question of applicability of Proviso does not arise. In the light of the above, we hold that the amount of subsidy is not to be deducted from the actual cost u/s 43(1) for the purpose of calculation of depreciation and the provisions to Explanation 10 to section 43(1) have no application to the facts of the present case. We are forfeited in taking this view by the decision of the Hon’ble Bombay High Court in the case of Welspun Steel Ltd. cited supra. This decision being that of Jurisdictional High Court is binding on us. Therefore, it is not necessary for us to deal with the decision of the Hon’ble Delhi High Court in the case of Steel Authority of India Ltd. (supra) and the Hon’ble Karnataka High Court in the case of Shree Renuka Sugars Ltd. (supra) relied upon by the ld. CIT-DR. Therefore, we do not find any merit in the ground of appeal no.2 and 3 filed by the Revenue. Accordingly, ground of appeal no.2 and 3 stands dismissed.

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 of the Act. Even during the course of hearing before this Tribunal also, ld. Counsel for the assessee stated that the subsidy is not relatable to any particular fixed assets and they have only apportioned it to various assets on the proportionate basis of total amount of fixed assets.

“9. The second question raised by the Revenue is consequent of the first question, in which, the Revenue argues that, if the subsidy is treated as a capital in nature, the same must bring down assessee's costs of acquisition of plant and machinery. The assessee's claim of depreciation to that extent must shrink. Assessee argues that, the Tribunal correctly held that, the subsidy had not been given in relation to acquisition of plant or machinery and that, therefore, same cannot be adjusted towards cost of acquisition.

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 of Kutch. In such back-ground, question arises whether such subsidy would be adjustable towards assessee's costs of acquisition of capital assets. We may notice that, a similar question was considered by Division Bench of Gujarat High Court in case of CIT v/s. Grace Paper Industries Pvt. Ltd., reported in 183 ITR 591. The Court noted that, the subsidy was granted by the Government for development of industries in back-ward areas. It was not part of the actual cost of plant or machinery. The Court, therefore, held that it could not have been deducted towards costs of acquisition. The Court held as under:-

“We have carefully considered the provisions relating to the grant of cash subsidy under the schemes framed by the Central Government and the State Government. The Central Government as well as the State Government noticed that areas specified as backward areas and tribal areas were undeveloped or under-developed. Entrepreneurs were not willing to set up industries in such undeveloped or under- developed areas. The industries were concentrating only in urban areas. In other words, rapid urbanization was taking place. So far as the State of Gujarat is concerned, there was rapid industrial growth in cities like Baroda, Ahmedabad and Surat resulting in strain on municipal services. Urbanization created several problems such as pollution, growth of slums etc. It was also necessary to have balanced growth of industry in different regions. However, as pointed out above, entrepreneurs were reluctant to set up industries in backward areas. These areas were identified as backward because there was un-development or under-development of industries in these areas. It was, therefore, that the Government decided to give financial incentives to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop and promote the welfare of the people living in that region. One of the incentives which the Government decided to grant was cash subsidy so that entrepreneurs could utilize such cash subsidy for any purpose connected with the establishment of industries in the backward areas. Once the decision to give cash subsidy was taken, the Government had to work out some method to determine the quantum of such subsidy. In other words, the question as to how the amount of cash subsidy should be determined had to be considered by the Government. The Government, in order to determine the amount of cash subsidy, decided to follow one of the recognized methods of working it out on the basis of the amount invested by an entrepreneurs in acquiring capital assets as cash subsidy. The scheme does not say as to in what manner the subsidy was granted is to be utilized. In other words, the entrepreneur to whom the subsidy was granted was free to utilize it in any manner he liked. It would, therefore, appear that quantification of subsidy on the basis of investment was a measure adopted by the Government for Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 convenience to work out the subsidy. If subsidy could be utilized by the entrepreneur in any manner he liked, could it be said that it was granted for meeting the cost of the capital assets? In our opinion, taking an overall view of the various provisions of the scheme, it is difficult to hold that cash subsidy was granted to entrepreneur to meet the cost of the fixed assets or part thereof. The cost of the fixed assets was merely adopted as a measure for working out subsidy. In fact, a careful examination of the scheme reveals that it is the value of the fixed assets and not its cost which is adopted as the basis for computing the amount of the subsidy. Emphasis on value and not the cost is evident from the fact that land and building already owned by an industrial unit, cost of tools, jigs, dies and moulds, transport charges, insurance premium, erection cost, value of second-hand machinery purchased by an industrial unit etc. were to be taken into account while computing the value of fixed assets for the purposes of subsidy. In other words, it was the value of the fixed assets which formed the basis for computation of subsidy to be granted under the scheme. Subsidy, in our opinion, did not meet the cost of the fixed assets directly or indirectly. Under the scheme of the Central Government or the scheme of the State Government, cash subsidy was quantified by determining the same at a specified percentage of the value/ cost of the fixed assets. Therefore, as observed above, the basis adopted for determining the cash subsidy with reference to the cost or value of fixed assets was only a measure for quantifying the subsidy and it could not be said that the subsidy was given for the specific purpose of meeting any portion of the cost of the fixed assets. The subsidy was granted to compensate the entrepreneur for the hardship and inconvenience which he might encounter while setting up industries in backward areas."

“In so far as question No.2 is concerned, this court finds that the same is squarely covered by the decision of the Supreme Court in CIT v. P. J. Chemicals Ltd., [1994] 210 ITR 830. In the said case, after review of the law on the point, the Supreme Court has held as under (headnote):

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 “Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost'. The expression 'actual cost' in section 43(1) of the Income Tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. The amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation etc." No question of law, therefore, arises in this respect.

12. Question No.3 itself records that the issue at hand is covered by the decision of this Court in case of HDFC v/s. DCIT reported in 366 ITR 505 but that, the department has not accepted the decision of the High Court. In that view, this question also is not required to be entertained.”

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 2002 and Central Sales tax (CST) Act, 1956 by the eligible Mega Projects in respect of sale of finished products eligible for incentives before adjustment of set off or other credit available for such period as may be sanctioned by the State Govt., less the amount of benefits by way of Electricity Duty exemption, exemption from payment of Stamp duty (as may be specified by the Government) availed by the eligible Mega Projects under PSI, 2001/2007 whichever is lower and also the claim of subsidy is required to be made on annual basis. On depth analysis of the Package Scheme of Incentives for Mega Projects by the assessee under the consideration, we find that alleged subsidy received by assessee is not relatable to any fixed asset and therefore the case of the assessee is not falling in Explanation 10 to section 43(1) of the Act and therefore section 2(24)(xviii) of the Act comes into operation and the subsidy received by the assessee is to be treated as income liable to be taxed for the year under consideration. We therefore fail to find any infirmity in the order of ld.CIT(A) and the common grounds of appeal No.2 raised by the assessee for the Assessment Years 2016-17 to 2018-19 relating to taxability of Subsidy are dismissed.

19. Now we come to the second issue regarding the disallowance u/s.36(1)(va) of the Act for which the assessee has commonly raised this ground in to 156/PUN/2025 for A.Y. 2016-17 to A.Y.2018-19 including Cross appeals and 157/PUN/2025 for A.Y. 2019-20 and A.Y.2020-21. Assessee has also raised the additional grounds for A.Yrs. 2016-17 to A.Y. 2020-21 before this Tribunal which reads as under :

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 “Common Ground for A.Y. 2016-17 to A.Y. 2018-19 (except figures). Ground No.1 raised for A.Y. 2016-17 is reproduced below :

1. The ld.CIT(Appeals) has erred in dismissing the Ground No.2 of the assessee in respect of disallowances of Rs.62,169/- and Rs.60,93,292/- made by the Assessing Officer on accuont of late payment of ESIC and PF beyond the period prescribed under the ESIC and PF Acts respectively.

Grounds for A.Y. 2019-20 (cross appeal by assessee) : The following grounds of appeal are taken independently and without prejudice to one another.

1. The Ld. CIT(Appeals) has erred in dismissing the Ground No. 2 of the assessee in respect of disallowances of Rs. 78,78,997/-made by the Assessing Officer on account of late payment of employee's contribution to ESIC and PF beyond the period prescribed under the ESIC and PF Acts respectively.

2. The total payments of Rs. 78,78,997/- made by the assessee to the government account in respect of the employee's contribution to Provident Fund and ESI of Rs. 78,78,997/- disallowed by the department for the reasons that the said payments have been made after the due dates falling in a particular month; say April 2018 may be treated as payments made against the due dates of payments of the employee's contribution to ESI and the employee's contribution to the provident Fund falling in the next month; say May 2018 and so on for all the months in the Financial Year and the deduction may be allowed for the same u/s 36 (1) (va) of the Income Tax Act.

3. The appellant craves leave to add to or amend/modify or delete any or all of the above grounds of appeal.”

Grounds for A.Y. 2020-21(cross appeal by assessee) :

“1. The ld. Addl/Joint CIT(Appeals) has erred in confirming the addition of Rs.62,32,826/- made by the Assessing Officer on account of late payment of PF and ESIC into the relevant funds.

2. The appellant craves leave to add to or amend/modify or delete any or all of the above grounds of appeal.”

Commonly raised Additional Ground for A.Ys. 2016-17 to 2020-21 (except figures). Additional Ground raised for A.Y. 2016-17 is reproduced below:

“The total payments of Rs.61,35,312/-made by the assessee to the government account in respect of the employee's contribution to ESI of Rs.41,707/- and the employee's contribution to the Provident Fund of Rs.60,93,605/-disallowed by the department for the Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 reasons that the said payments have been made after the due dates falling in a particular month; say April 2015 may be treated as payments made against the due dates of payments of the employee's contribution to ESI and the employee's contribution to the provident Fund falling in the next month; say may 2015 and so on for all the months in the Financial Year and the deduction may be allowed for the same u/s 36 (1) (va) of the Income Tax Act.

4. The above additional ground of appeal

could not be taken at the time of filing the appeal, as the matter could not be appreciated from this perspective. The additional ground however does not require any verification of new facts. All the facts for allowing the deduction are already available on record. The additional ground goes to the root of the deduction u/s 36. (1) (va) of the Act. The statements of the payments totalling to Rs.61,35,312/- are attached herewith.

5. PRAYER It is accordingly prayed that the above additional ground of appeal may be admitted for adjudication of the appeal in the interest of justice. In this regard reliance is placed on the following judgements. (i) NTPC Ltd. [2017] 88 taxmann.com 561 (SC). (ii) Jute Corpn. of India Ltd. [1990]

53. Taxman 85. (SC). (iii) Ahmedabad Electricity Co. Ltd. [1993] 66. Taxman 27. (Bombay).”

20. Ld. Counsel for the assessee has submitted that even though the judgment of Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (supra) is applicable on the assessee for the delay in deposit of Employees Contribution towards PF /ESI, the only argument is that the Employees contribution disallowed for delay in deposit in the first month of the financial year is like an advance amount for the dues of the following month and if there is delay in deposit of amount of following month then the disallowed amount of previous month can be adjusted as advance payment of following month. He also gave an example that for the month

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 of April, 2015 the due date to deposit the contribution towards PF/ESI is 15.05.2015 and the assessee has deposited the amount on 18.05.2015. Now in such case, the employees contribution towards PF/ESI in April 2015 has to be disallowed. However, for the subsequent month again there is delay but the contribution for PS/ESI for April, 2015 which has been deposited in the month of May, 2015 and the assessee has not received benefit for such contribution and therefore the same can be considered as advance payment for the Employees contribution towards PF/ESI for the month of May, 2015. Similar analogy has been drawn for the remaining amount as well as other assessment years under appeal. The only prayer is that the matter may please be restored to the file of ld. Jurisdictional Assessing officer who can carry out necessary verification and if contention is accepted then the assessee is eligible to part relief. Submission of ld. Counsel for the assessee reads as under :

2. The above disallowance has been challenged by the assessee before the Hon'ble Tribunal vide ground No. 1 of its appeal. On receipt of the notice of hearing from the Hon'ble Tribunal, on verification/appreciation of the matter while preparing the appeal, it has been realized that the payment of the above dues to the government account in the month of April 2015, though was made after the due dates falling in April 2015 as specified by the ESI Act and Provident Fund Act, these payments would qualify as payments u/s 36 (1) (va) of the Act against the respective amounts due for payment in the next month of May 2015, as these payments disallowed for the month of April 2015 have been made before the due dates of payment falling in the month of May 2015. Similarly, the respective payments made after the due dates in May 2015 and disallowed for that reason would qualify for deduction as payments made before the due dates for payments falling in the next month of June 2015 and so on, for all the months in the Financial Year. In other words, the payments made in the month of April 2015 after the due dates and disallowed for that reason, should be treated as payments made before the due dates falling in the month of May 2015 and so on.

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21

23. Apart from the above two issues, the only issue not common for all the assessment years 2016-17 to 2018-19, is the one raised in A.Y. 2018-19 in Ground No.1 that ld.CIT(A) erred in upholding the addition of Rs.3,11,609/- on account of alleged understated receipt by way of duty draw back.

24. Apropos this issue, we observed that this issue has arisen as ld. AO took the amount of duty draw back received by the assessee as per Export/Import data at Rs.16,57,423/- whereas the assessee has shown duty draw back at Rs.13,45,814/- therefore ld. AO observed that the assessee understated the receipts. Observation of ld. AO has been affirmed by ld.CIT(A) by the First Appellate proceedings.

25. Before us, ld. Counsel for the assessee has submitted that reconciliation chart has been prepared and there is no difference in the figure of duty draw back shown by the assessee in the books as against the Export/Import data received from CBEC and a prayer has been made for granting an opportunity to place those details before ld. JAO for deciding the issue afresh in accordance with law. We therefore

Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 in light of submissions made by ld. Counsel for the assessee deem it appropriate to restore the issue to the file of ld. JAO for carrying out necessary exercise after examining the details to be furnished by the assessee. Needless to mention that ld. JAO shall afford reasonable opportunity to the assessee. Ground No.1 raised by the assessee is allowed for statistical purposes. to 156/PUN/2025 are partly allowed and the Cross appeals and 157/PUN/2025 filed by the assessee are allowed for statistical purposes as per the terms indicated above.

“1. On the facts and circumstances of the case and in law, the Ld. Addi/JCIT(A) has erred in deleting the adjustment made by the CPC u/s.143(1)(a) (ii) of the Act of Rs.37,09,24,467/- by holding that the same was not an incorrect claim as defined in Explanation to the said provision, without appreciating that there was inconsistency with regard to the amount claimed as exempt, as per item 5C of Schedule BP and item 6 of Schedule 'EI' of the ITR and therefore, the claim was clearly covered under sub-clause (i) of clause (a) of the said Explanation.

2. On the facts and circumstances of the case and in law, the Ld. Addl/JCIT(A) erred in holding that the assessee has reduced the subsidy/incentive received by the assessee from the cost of receipts as per Explanation 10 to Sec.43(1) and therefore, the same cannot be deemed as income in terms of Sec.2(24)(xviii), without actually examining the actual nature of the said receipt and that whether the same was granted/utilized for acquiring any asset so as to cover under the said Explanation.

3. Without prejudice to the above, on the facts and circumstances of the case and in law, the Id. Addl./Jt.CIT erred in deleting the Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 impugned adjustment made by the CPC without appreciating that the assessee was not obligated to spend the subsidy received from the Govt. of Maharashtra under the Package Scheme of Incentive, 2007 in the form of interest subsidy, electricity duty exemption, royalty refund, octroi/entry tax refund etc., for any specific purpose which meant that the resulting greater profitability was an incentive for investors to establish/expand units promoting industrialization and employment opportunities and therefore, such receipts are liable to be taxed as revenue receipts, in terms of Section 2(24)(xviii) of the Income Tax Act, 1961 as the same did not fall under the exceptions provided in clause (a) or (b) of the said provisions.

4. The appellant craves leave to add to, amend, alter any of the above grounds of appeal.”

28.1 Identical grounds have been raised by the Revenue in and for A.Y. 2019-20 and 2020-21 respectively.

(A) On merits the subsidy is not chargeable income as the assessee has deducted the amount of Rs. 37.09 Crore from cost of assets for claiming the written depreciation. Please refer submissions in Annexure 'A' to Assessment Year 2016-17 and 2017-18. (B) The adjustment made is outside the scope of the specific items of adjustments permitted u/s 143(1)(a) of the Income Tax Act. has (ii) The reasons given in the adjustments made under section 143(1)(a) made under the Act can neither be called as any arithmetical error in the return or an incorrect claim apparent from any information in the return or any inconsistency in the return. As per Para 28.2 of the CBDT Circular No. 1 of 2009 dated 27-03- 2009 of Income Tax Act these were basically the 2 items of adjustments that were envisaged by the legislature while introducing the amendment to section 143(1) of the Income Tax Act, the Processing the return through centralised processing of returns, in the Finance Act, 2008. (iii) As per the 1st proviso to section 143(1)(a), nпо be made unless of the proposed adjustment shall communication/notice adjustments is given to the assessee to file its response within 30 days from the issuing of the communication/notice. In this case though the communication (Annexure H) has been issued, but it does not Shriniwas Engineering Auto Components Pvt. Ltd. A.Ys. 2016-17 to 2020-21 contain any query regarding application of section 2(24) (xviii) or about any mismatch. The Reliance is placed on the following judgments in this regards. A. Arham Pumps [2022] 140 Taxmann.com 204 (Ahmedabad - Trib.). B. Camellia Educare Trust [2023] 152 taxmann.com 304 (Kolkata - Trib.). C. Kailash Narayan Shridhar [2025] 177 taxmann.com 755 (Ahmedabad - Trib.).”

Order pronounced on this 22nd day of December, 2025.