M/S. SHANDAR INTERIORS PVT. LD.,,PUNE vs. PR. COMMISSIONER OF INCOME-TAX : 3,, PUNE

Maharashtra, there is an approval of grant of Rs. 20 lakhs of incentive to

the assessee in addition to the provision for exemption of electricity duty

for 15 years from 01-04-2007 onwards. As part of it, the assessee received

the said subsidy of Rs.16 lakhs and, however, AO assumed that it was

provided towards meeting the electricity charges and the contents of Para 3

of the assessment order are relevant. AO treated the same as financial

assistance for the purpose of running his business. Accordingly, AO relied

on the judgment of Supreme Court in the case of Rajaram Maize Products

119 Taxman 492 (SC) which holds that the Electricity subsidy receipts

received by the assessee constitutes a revenue receipt. Eventually, the

sum of Rs.16 lakhs received on account of electricity charges is added to

the total income of the assessee. Eventually, the assessed income is

determined at Rs.23,29,200/-. CIT(A) confirmed the said addition in the

First Appellate proceedings as per the discussion given in Para No.5 of his

order. According to the CIT(A), the issue of power subsidy constitutes

taxable income of the assessee.

grounds extracted above.

the Eligibility Certificate for grant of Special Capital Incentive under PSI

2001 Scheme dated 24-01-2011 (Page 3 of the paper book) and submitted

that the subsidy granted to assessee constitutes two segments in the

Special Capital Incentive ( in short ‘SCI’) and approved by the

Maharashtra Government. Referring to page 4 of the paper book, Ld.

Counsel for the assessee submitted that the actual admissible investment

on this account of ‘SCI’ is Rs.20 lakhs. Out of it, assessee received only

Rs.16 lakhs in this year. Further, referring to the written submissions

made by the assessee before the CIT(A) dated 26-04-2016, Ld. Counsel

submitted that, in granting the subsidy to the industries, the Maharashtra

Government’s motto is to promote industries in the backward area of the

State. For this, granting electricity subsidy to the assessee is part of it

and hence, it constitutes a capital subsidy aimed at generation of

employment in the backward areas of the State. Therefore, the same

constitute a Capital Receipt which is not a taxable receipt. Further, relying

on the jurisdictional High Court in the case of CIT Vs. Reliance Industries

Ltd. 339 ITR 632 (Bom.), Ld. Counsel for the assessee submitted that the

issue under consideration stands covered in favour of the assessee.

Further also, Ld. Counsel submitted that there is some confusion in

appreciation of facts by the income-tax authorities with regard to the facts,

figures and the purpose of subsidy. Referring to the cited jurisdictional

High Court judgment in the case of Reliance Industries Ltd. (supra), Ld.

Counsel for the assessee submitted that the case of the assessee is similar

to that of one examined by the said Hon’ble Bombay High Court. Ld.

Counsel also mentioned that there are various schemes of subsidy granted

by the Maharashtra Government since 2001 and the 2001 Scheme stands

amended by the 2007 scheme. As per the Ld. Counsel, in the mind of the

AO, there is some confusion in the matters with regard to the applicable

scheme as well as the subsidy/incentive granted to the assessee under

consideration. She also referred to clauses 5.1 and 5.4 of the PSI 2001

Scheme and submitted that the amount of Rs.16 lakhs received is a capital

receipt. She also submitted that there is no issue with reference to the

granting of electricity duty received by the assessee. Referring all these

facts, Ld. Counsel for the assessee submitted that the AO totally erred in

understanding the facts of the scheme as well as the benefits granted to

the assessee and therefore, Ld. Counsel submitted that the matter may be

remanded to the file of AO for removal of the confusion and bringing clarity

into the facts.

orders of the AO and the CIT(A) and submitted that addition of Rs.16 lakhs

of subsidy constitutes a receive receipt.

and the documents placed before us for consideration. The undisputed

facts include that the assessee received Rs.16 lakhs out of the total benefit

of Rs. 20 lakhs of subsidy. The same is duly accounted in the books of

account of the assessee. It is the claim of the assessee that the same was

utilised for the fixed assets and therefore, the same constitutes a Capital

Receipt. However, per contra, the Department is of the view that the same

constitutes a Revenue Receipt as it was given towards the electricity

charges. On perusal of the eligibility certificate issued under PSI 2001

Scheme, we find that there is a reference to the figure of Rs.20 lakhs under

‘Special Capital Incentive’ granted to the assessee. In addition, assessee is

also eligible for exemption of electricity duty as per Clause 5.4 of the

amended PSI 2001 Scheme from 01-04-2007 to 31-03-2023. Assessee

received Rs.16 lakhs in this year and the same is said to have been utilised

for fixed assets. As such, AO misunderstood the whole scheme of subsidy,

and, is of the opinion that the subsidy is towards the electricity charges

and not for fixed assets of the business. AO did not examine the

object/purpose of grant of the said subsidy as well as the manner of

utilization of the said Rs.16 lakhs qua the objects of the scheme.

Therefore, in our view, there is a requirement of examining the

purpose/objects for which the said subsidy is granted to the assessee. The

binding judgment of Hon’ble Bombay High Court in the case of Reliance

Industries Ltd. (supra) is also to be considered while re-examining the

issue. It is the request of the Ld. Counsel for the assessee that the matter

may be remanded to the file of AO for want of clarity of facts in the mind of

AO on the issue. We find merit in the same. Considering the same, we are

of the opinion that the whole issue, relating to addition of Rs.16 lakhs

received by the assessee under ‘Special Capital Incentive’ by the

Maharashtra Government, is remanded to the file of AO for fresh

examination into the facts. It goes without saying that the AO shall grant

reasonable opportunity of being heard to the assessee. AO shall note that

the subsidy of Rs.16 lakhs is different from the additional benefit relating

to subsidy of exemption of electricity duty. Further, the AO shall

scrutinise the documents on the applicable scheme of incentive on one side

and the manner of utilization of Rs.16 lakhs qua the objects/purpose of

the said incentive/subsidy before characterising the nature of the subsidy.

AO shall note that it is a settled legal proposition that the subsidy for

encouraging the set up of industries in backward areas for generating the

employment, constitute the capital receipt as held by the jurisdictional

High Court in the case of Reliance Industries Ltd. (supra). Thus, AO shall

pass a speaking order after considering the judgment of Hon’ble

Jurisdictional High Court in the case of Reliance Industries Ltd. (supra)

cited by the Ld. Counsel for the assessee before us. Accordingly, the

grounds raised by the assessee are allowed for statistical purposes.

purposes.

Order pronounced on this 14th day of May, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 14th May, 2018. Satish

आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-4, Pune 3. आयकर आयु� / The CIT-4, Pune 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “एक सद�य 5. एक सद�य एक सद�य” / एक सद�य DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार

P स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune