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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI S.V. MEHROTRA & MS. SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
These two appeals are filed by the assessee as well as the Revenue against the order of Ld. CIT(A)-I, Dehradun passed on 16/02/2010.
The grounds of appeal of the assessee are as follow:-
1. That on the facts and circumstances of the appellant’s case the Ld. Assessing Officer has erred in issuing notice u/s 148 of the Act to assume jurisdiction for (re) assessment without recording the reasons there for as a borne from the omission of the Ld. A.O to provide a copy thereof to the appellant and the Ld. Commissioner (Appeals) in upholding such assumption of jurisdiction without verifying himself the compliance of the statutory requirement of Section 148(2) of the Act.
2. That on the facts and circumstances of the appellant’s case the Ld. Assessing Officer has erred in adding an amount of Rs.2,05,000/- received by the appellant as grant for milk parlours and the Ld. Commissioner (Appeals) in confirming the addition. 3. That on the facts and circumstances of the appellant’s case the Ld. Assessing Officer has erred in adding an amount of Rs. 1,00,00,000/- received by the appellant as grant for working capital and the Ld. Commissioner (Appeals) in confirming the addition. 4. That on the facts and circumstances of the appellant’s case the Ld. Commissioner (Appeals) has erred in having rejected appellant’s legitimate claim for a deduction u/s 80P(2) (c)(ii) of the I.T Act, 1961 after having entertained it for his adjudication. 5. That on the facts and circumstances of the appellant’s case the Ld. Assessing Officer has erred in rejecting the claim of the appellant for set-off of his business losses and un- absorbed deprecation of earlier years against his aggregate income of the year under assessment and the Ld.
Commissioner (Appeals) have erred in remanding the same to the Ld. Assessing Officer although the same is duly supported by acknowledgements of his return for the relevant earlier years, 6. That on the facts and circumstances of the appellant’s case the Ld. Assessing Officer has erred in not following the principles of natural justice in making his assessment and the Ld. Commissioner (Appeals) has erred in sustaining the assessment so made.”
The ground of appeal of the revenue is as follows.
“1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.20,00,000/- made on account of grant received under the head “Civil Works”.
The assessee is a State Govt. enterprise, incorporated for upliftment of poor villager, specially women of the weaker section of the society, and to provide them a chance of income generation in the field of production of milk and at the same time provide them a level playing field with other capitalist in this field. The Govt. also uses this society as its’ extended hand for directly providing assistance to the villagers/societies working in this field. The assessee is a non-profit generating organization, therefore, time to time governments (local, state, central) provide the assessee with grant and aids (a) to meet the short fall in revenue expenditure, (b) to install new machinery, tools and technologies, to upgrade the old technologies etc. and (c) to assist villages and village level societies to encourage the villages in the field of production of Milk etc. The grant and subsidy received against revenue expenditure is debited to P & L A/c as income, grant and aids received for purchase of Machinery etc if remained in balance at the end of the year is taken to the balance sheet and similarly the grant etc. received under the head (c) mentioned herein above remained at the end is also taken as part of balance sheet.
The A.O issued notice u/s 148 was issued on 4/6/2007, which was duly served upon assessee on 13/6/2007. Despite the requests made by the assessee no extracts of the reason recorded under Section 148(2) of the Income Tax Act, 1961 was provided to him. The Assessing Officer made addition in respect of grant of Rs.20 lakh under the head “Civil Works” by holding that the amount was to be used for construction and for renovation is not specified in the Government order, but the same was not given by the assessee. The Assessing Officer further held that renovation is repair work and is a revenue expenditure charged to Profit & Loss Account. The Assessing Officer further held that the grant of Rs.2,05,000/- for Milk Parlours, the A.R of the assessee could not submit copy of the G.O making this grant and was surrendered by him vide order sheet entry dated 26/12/2008. The Assessing Officer further held that the remaining grants of Rs.2,05,000/- + Rs. 28,95,000/- + 12,65,000/- + Rs. 1,00,00,000/-= Rs. 1,43,65,000/- are of revenue nature and thus added back to the income to the extent of Rs. 1,43,65,000/-
The CIT(A) observed in para 5.1 of the order that in spite of requests made by the assessee, no extracts of the reason recorded u/s 148(2) have been provided by the Ld. A.O. Therefore, the Ld. A.O’s omission to provide the extract of reasons to the appellant coupled with the omission to mention any such reason in the assessment order supports the appellant’s contentions and, therefore, the assessment order passed by the A.O is void ab initio.
But while observing this while giving finding, the Ld. CIT(A) held in para 5.2 as under :
“I have considered the above submission of the counsel of the appellant and the facts indicated by the A.O in the assessment order. It appears that the A.O has issued notice u/s 148 which was duly served upon the appellant and in compliance to that the appellant has filed reply stating that the return filed u/s 139(1) may be treated as return filed in response to notice u/s 148. After initiating the proceeding u/s 148, the A.O has issued earlier notice dated 26/11/2007 fixing the date of hearing on 30/11/2007. Subsequently the successor A.O has issued notice u/s 143(2) of I.T. Act dated 29/9/2008 by fixing the date of hearing on 16/10/2008 and such notice was duly served upon the appellant. IN fact in compliance to the notice of hearing, the Ld. Counsel of the appellant appeared before the A.O from time to time and assessment proceedings have been completed according to provision of law. Therefore, I am not in a position to interfere with the action taken by the A.O in issuing notice u/s 148 of the I.T Act and completing the assessment by adhering to due process of law and accordingly these grounds raised by the appellant do not succeed.”
The main contention of the Ld. AR is that the Assessing Officer has erred in issuing notice under Section 148 of the Act to assume jurisdiction for (re)assessment without recording the reasons there for as is borne from the omission of the Assessing Officer to provide a copy of the reasons recorded for reassessment by the Assessing Officer which is a statutory requirement of Section 148(2) fot eh Income Tax Act, 1961. The Ld. AR further submitted that the addition on account of Government grant Central (IDDP) working capital of Rs.25,00,000/- has been made on account of subsidy for Working Capital received by the assessee as transfusion of fresh capital for expansion of its valuable services at Haridwar and to raise a separate unit there, which in subsequent year become full- fledged unit, distinct to the present appellant. The name itself indicates the subsidy has been received on capital account. The A.O had therefore erred in adding it to the total income of the appellant. And the CIT(A) confirmed the addition so made by the A.O. This grant has been received on A/c of capital for raising unit of Haridwar.
The Ld. AR further stated that about the subsidies or grants, which form the bulk of the additions made in the appellant’s case, received by it on account of third parties (village societies) and on account of capital investment being non-taxable. The settled position of Law is that subsidies & grants, unless received to compensate for revenue expenditure, or loss or profit, are capital receipts and cannot be charged to tax and that is the position admitted by the Ld. A.O.
The Ld. AR further stated that the only reason for which the Ld. A.O seems to have taxed the subsidies and grants received by the appellant on capital account is its alleged failure to produce documentary evidence to substantiate its claim about these subsidies and grants being on capital account.
The Ld. AR further stated that the settled Law is that the nature of subsidies and grants from the point of their taxability is to be judged from the object with which these are given. All the relevant sanction orders on record before the Ld. A.O and now before us categorically bear testimony that all the subsidies and grants received by the appellant had been allowed to it under the ‘Dairy Development Plan’ of the Government. That being the objective of the subsidies and grants received by the appellant these cannot at all be brought to tax unless these have been received to compensate the appellant for expenditure incurred by it on revenue account, to compensate for its loss of profit.
The Ld. AR further stated that the Ld. A.O has grossly erred in placing the onus on the appellant to establish that the subsidies and grants received by him were on capital account. It is settled Law that the onus to prove that the amount received represented a revenue receipt was on the Department as has been held in Baghapurana Co-op. Mktg. Society Ltd. Vs. CIT (1989) 178 ITR653 (P &H) in view of the judgment of the Apex Court in Bombay Steam Navigation Co. (1953) P. Ltd. Vs. CIT [(1965) 56 ITR 52 (Hon'ble Supreme Court)], if the Department fails to discharge the onus, then the amount is not to be included in the income of the assessee. It is only if the Department is able to show that the amount received represented a revenue receipt that the onus will shift to the assessee to rebut it.
The Ld. AR further stated that the CIT(A) had no material on record before him as can reasonably be taken to indicate that the amounts of subsidies and grants received by the appellant represent revenue receipt, expect of course to the extent of the amount credited to his Profit and Loss Account by the appellant itself. The addition made by the A.O on these account and to extent confirmed by the CIT(A) therefore has no basis at all, could not be sustained and had to be deleted.
The DR relied on the assessment order as well as CIT(A)’s order.
We have perused all the records and heard both the parties. It is observed that on several occasions the Department was called for the assessment records, the Department was unable to produce the same. It was clearly mentioned in para 5.1 of the CIT(A)’s order that no reasons were provided to the assessee at the relevant time as per Section 148(2) of the Income Tax Act, 1961. Therefore, we set aside the order of the CIT(A) and held that Assessing Officer erred in issuing notice u/s 148 of the Income Tax Act, 1961 without recording the reasons. Since the assessment order itself is quashed, there is no need to go into the merit of the case.
In result, the appeal of the Assessee is allowed and the appeal of the Revenue is dismissed.
The order is pronounced in the open court on 15th of December 2015.